Microsoft's Cloud Business Propels Strong Quarterly Gains

Microsoft beat analyst forecasts for Q4 of its 2017 fiscal year thanks to strong Azure revenue growth.

Revenues of $24.7 billion for the quarter-ended June 30 increased 9% year-over-year, with operating income of $7 billion contributing a 13% boost in profits, the company announced Thursday afternoon following the close of the equity markets.

Revenues for the entire fiscal year were up 5%, totaling $96.7 billion.

Azure revenues rose 97% during the quarter, contributing to a 15% rise in overall server products and cloud services revenue. While Microsoft still doesn't break out Azure revenues, the company said its commercial cloud run rate of $18.9 billion represented a 56% year-over-year increase. Intelligent Cloud revenues of $7.4 billion grew 11%.

This quarter's cloud growth keeps Microsoft on pace to reach its goal of reaching $20 billion in cloud revenues in its 2018 fiscal year, which kicked off July 1, said Microsoft CEO Satya Nadella during the company's quarterly earnings call.

"More than ever before, customers are placing their trust in the Microsoft cloud," Nadella said during prepared remarks on the call with analysts. "CIOs and business decision makers increasingly prefer Azure as they make decisions about their cloud strategy."

Gross margin for Microsoft's commercial cloud services, which in addition to Azure includes Office 365 and Dynamics 365, was up 52% for the period, a 10-point increase.

Office 365 remained a strong contributor, as well, helping drive up revenues in Microsoft's Productivity and Business Process segment by 21% to total $8.4 billion overall. The bulk of that growth came from commercial Office 365 revenues, which rose 43%, while consumer software and services grew 13 percent.

Microsoft's Dynamics business also continued to show signs of continued growth, with overall Dynamics product and services revenues up 7%. Dynamics 365 revenues grew 74%, though that's owed to the fact that Microsoft just launched the new offering last year.

Not everything about the latest quarter was as strong. A flat Windows and Surface business contributed to a 2% decline in Microsoft's More Personal Computing division. Surface revenues declined by 2% and Windows OEM sales increased just 1%, though commercial products and services revenues rose 8%.

Also, while LinkedIn brought in $1.1 billion in revenue, take that out of the equation and total revenue growth would have been only slightly higher than the same period last year.

About the Author

Jeffrey Schwartz is editor of Redmond magazine and also covers cloud computing for Virtualization Review's Cloud Report. In addition, he writes the Channeling the Cloud column for Redmond Channel Partner. Follow him on Twitter @JeffreySchwartz.


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