August 20, 2019
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Microsoft's cloud business drives record sales

 File image of the Microsoft Windows logo at a computer show in Taipei, Taiwan, May 31, 2016. EPA-EFE FILE/RITCHIE B. TONGO

File image of the Microsoft Windows logo at a computer show in Taipei, Taiwan, May 31, 2016. EPA-EFE FILE/RITCHIE B. TONGO

By Asa Fitch and Dan Gallagher

Dubai/San Francisco, USA, Jul 18 (efe-epa).- Microsoft said strength in its cloud-computing business drove record revenue in the latest quarter, extending the strong performance under Chief Executive Satya Nadella that has made it the world's most valuable public company, according to a report from Dow Jones supplied to EFE on Tursday.

Revenue rose 12 percent to $33.72 billion from the year-earlier period, the company said Thursday, beating Wall Street estimates. Profit also topped expectations.

The results for Microsoft's fiscal fourth quarter ended in June reflected continued strength in corporate spending on the cloud services that have revolutionized business computing over the past decade. Companies increasingly are paying subscriptions for software and renting computer power, rather than buying applications that run on their own servers.

Microsoft's strong revenue continues to demonstrate that the company is "a clear winner in the digital transformation trend that corporations of all sizes are now undertaking," said Brad Reback, an analyst at Stifel, Nicolaus & Co. "They are a vendor of choice."

Revenue in Microsoft's cloud-computing businesses, which accounted for about a third of sales in the period, rose 39 percent. The company's transition to offering customers subscriptions to cloud-based versions of its Office productivity suite and other popular programs has helped propel that growth. So has the popularity of Azure, a cloud service that is second in size only to Amazon's AWS.

There are no signs that Microsoft's fortunes will reverse anytime soon. Chief Financial Officer Amy Hood told analysts that the current fiscal year should again see double-digit sales growth.

Still, while cloud-computing sales are growing fast, the business also is increasingly competitive. Alphabet's Google and China's biggest tech companies are vying for their share.

Google last year poached a top Oracle executive to run its cloud business as it seeks to challenge Azure and AWS.

IBM recently closed its $34 billion purchase of open-source software giant Red Hat, as it gears up to compete for cloud contracts.

Research company Gartner forecast in April that spending on cloud services would rise nearly 18 percent this year, topping $214 billion.

AT&T said Wednesday that it is shifting most internal business applications used by its biggest unit to Azure, in part to cut costs. That came a day after AT&T announced a separate cloud deal with IBM.

Microsoft shares traded up more than 2 percent after-hours Thursday following the earnings report. Investors have rewarded the company's recent success by pushing its stock to a record close earlier in the week and giving it a market capitalization north of $1 trillion.

Nadella credited deep partnerships with companies in every industry with propelling Microsoft's strong performance in the latest period.

Since taking over in early 2014, Nadella has guided Microsoft through a major reorientation of the business, making up for slowing sales of Windows by expanding in other areas. That has put Microsoft back at the pinnacle of the tech industry after years of struggle to find its way as computing shifted to mobile from desktop computers.

The rise of cloud computing has been central to the success of that retooling. Azure revenue in the latest quarter grew 64 percent from a year earlier, Microsoft said, though the pace has been moderating as the business got bigger.

Profit in the fiscal fourth quarter rose 49 percent from a year earlier to $13.19 billion, or $1.71 a share. The total was a quarterly record bolstered by a one-time tax gain of $2.6 billion. But even absent that tax windfall, it would have been a record for the company. Adjusted to account for that tax issue, earnings were $1.37 a share, topping consensus expectations of $1.21 for analysts surveyed by FactSet.

In Microsoft's fiscal year, revenue and profit both grew by double digits and reached record levels. The company made more than $125 billion in the year.

Microsoft expects revenue of $31.7 billion to $32.4 billion in the current quarter, Hood said, up from $29.1 billion in the year-ago period.

Microsoft has invested in areas besides cloud computing, raking in revenue from sales of Surface tablets, Xbox gaming consoles and a growing stable of software and services.

Gaming was a rare low point for Microsoft in the latest quarter, Dow Jones added in its report to EFE.

Revenue in the typically cyclical business fell 10 percent, as the company faced a tough comparison to a year earlier when the hit battle-royale game "Fortnite" propelled sales.

Microsoft, once the target of a major regulatory battle over its power, has avoided the harsh spotlight shone on many of its fellow tech giants in recent years over issues of privacy, misinformation, and competition.

Microsoft in 2016 bought LinkedIn, a social network oriented around jobs; its revenue rose 25 percent in its latest quarter. The company also owns teleconferencing software Skype and the search engine Bing.

Sales of Windows commercial products and cloud services grew 13 percent, buoyed by customers upgrading to newer versions of the operating system ahead of January, when Microsoft will stop supporting Windows 7.

Despite its mammoth size, Microsoft has managed to maintain overall revenue growth in the double digits, outdoing other established tech giants like Amazon and Google parent Alphabet, which have seen growth slow in recent quarters.

Microsoft has shown it can operate in thin air. Now investors can breathe a sigh of relief.

Once again the world's most highly valued public company, Microsoft faced lofty expectations heading into its fiscal year-end report Thursday afternoon. Its results cleared a high bar.

The company needs to keep up its game more than ever and keeps rising to the challenge. Its ability to grow both its top and bottom line are especially remarkable given the deep-pocketed companies with which it competes.

Microsoft spent a record $16.9 billion in research and development in the fiscal year ended in June and another $13.9 billion in capital expenditures. The latter figure is up 20 percent from the previous year.

But it hasn't let spending get out of control. Microsoft's R&D has remained at 13 percent of revenue for the last eight years. Meanwhile, its capital spending still pales in comparison to Google, which is now expending more than $20 billion annually as it races to build up its own cloud services.

To stay above the trillion dollar mark, though, Microsoft needs to make all of its billions count. EFE-EPA

dj/dl

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