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Microsoft Posts Worst Loss Ever but Looks Ahead to Win in Cloud

When Microsoft acquired Nokia's handset business last year, many feared it was doomed on arrival. The new CEO, Satya Nadella, was stuck with the deal struck by his predecessor Steve Ballmer and stuck with trying to make it work. Clearly that didn't happen as Nadella earlier this month warned employees of plans to write off most of the business, resulting in Microsoft posting the worst quarterly loss in its history. 

Microsoft decided to take its medicine and start the new fiscal year 2016 with a clean slate and focus on Windows 10, which arrives a week from today, and its growing cloud business. In the conference call with investors last evening to discuss the quarterly and year-end results, Nadella emphasized Microsoft's growing cloud business, which includes Office 365, Azure and Dynamics, among other services.

Nadella said its cloud business is on an $8 billion run rate this year on pace to become a $20 billion business in 2018. On the call, Nadella focused on the three key areas of focus for Microsoft moving forward, which he outlined at last week's Worldwide Partner Conference Orlando, Fla. The three areas of focus are:

  • Productivity and Business process including its Office 365, SharePoint and Dynamics offerings
  • Building an "intelligent" cloud platform via Azure, which includes everything from its Enterprise Mobility Suite consisting of InTune, Active Directory Premium and Azure Rights Management;  the company's business intelligence and analytics business and security.
  • Windows: Making computing more personal with Windows across PCs, tablets and phones.  While phones may not play out the way Microsoft had once hoped (in terms of gaining large share), its support of iOS and Android is set up not to diminish that ambition.

For those three to play out, Microsoft is betting tens of billions of dollars on building out its cloud infrastructure and beating out its rivals -- most of whom are also critical partners as well including Amazon, IBM, Google, Hewlett Packard, Oracle and VMware.

"We need to own the cloud," said Kevin Turner, speaking in his WPC keynote address, where he typically gives his annual competitive sizing of the markets Microsoft compete in. "The cloud market is being made right now. And I promise you if we don't own it with the customer, somebody else is going to own it. We have the technology, we have the solutions this is the time to own the cloud."

Turner claims that 85 percent of the Fortune 500 runs at least one Azure service and 60 percent run two or more. While it's too early to say whether Turner's prediction of owning the cloud will play out, the numbers, opaque as they are, look promising at this point. It's 8 billion run rate represents an 88 percent year-over-year increase. If Microsoft can maintain its cloud growth goals, its worst loss ever will be a lot easier to swallow.

Posted by Jeffrey Schwartz on 07/22/2015 at 11:49 AM


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