Microsoft Beats Estimates on Profits from Cloud Services

Microsoft Beats Estimates on Profits from Cloud Services

On Thursday, better-than-expected quarterly profits were reported by Microsoft Corp. as it saw a rise in demand for its cloud services to firms and there was also some stabilization in its personal computer software department. Once the news hit the market, there was a 4 percent increase in the share price of the world’s largest software company. The company’s decision to put more emphasis on the rapidly growing cloud platforms and applications is helping it in dealing with the reduction in demand for personal computers, which has affected the sales of Windows, the software that was responsible for taking the firm to the top back in 1990s.

Under the leadership of Satya Nadella, Microsoft’s new chief executive, the firm’s cloud services that comprise of products such as Dynamic 365, Office 365 as well as the flagship computing platform Azure, has become a major source of growth. In the first fiscal quarter of the software giant that ended on September 30th, there was nearly 14 percent rise in revenue from the intelligent cloud business as it reached $6.92 billion. The average expected revenue of the company by the analysts had been around $6.70 billion. However, there was only a 90 percent growth in the revenue from Azure whereas there had been a 97 percent rise in the previous quarter.

Azure is competing with offerings from Alphabet Inc.’s Google, Inc.’s Amazon Web Services and Oracle Corp. and IBM. According to director of investor relations at Microsoft, Stephanie Rodriguez, the strong performance by Azure played an important role in lifting the gross margin of the company’s cloud services business as it reached 57 percent. The software company said that its annualized run rate of the commercial cloud in the quarter had reached $20.4 billion. A $20 billion target had been set by Satya Nadella back in 2015 in terms of cloud revenue that was to be achieved by 2018.

The personal computing division is Microsoft’s largest in terms of revenue, but it saw a 0.2 percent decline when it reached $9.38 billion and yet it was still higher than the $8.81 billion estimate made by analysts. The unit comprises of Xbox gaming consoles, Windows software, Surface personal computers and online search and advertising. After Microsoft’s success in defeating all predicated estimates by the analysts, they have said that the company is ready for an acceleration in growth.

Analysts stated that heading into 2018, Microsoft will see a rise in growth, which has pushed back the pressing margin concerns. While cloud services will undoubtedly remain the major growth driver for the Redmond, Washington based company, a slow improvement in the PC business could also make a modest contribution to the firm’s overall bottom line. As long as the company doesn’t lose focus and continues to add onto its services, its profits are expected to go up. The technology firm reported a net income of about $5.58 billion, which is approximately 84 cents a share. A year earlier, it had been about $5.67 billion or 72 cents a share.

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