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Microsoft attributes growth to cloud

Microsoft has released its third quarter financial results. They are solid without being spectacular. But they are moving in the direction the new CEO wants.

Satya Nadella has delivered the software giant’s quarterly results for the first time. It is far too early for them to de affected by anything he has done since being appointed to the top job earlier this year, but they give good indication of the direction the company is headed – with the exception of the new Microsoft Mobile (a.k.a. Nokia) division.

The numbers, for Microsoft’s third quarter ended 31 March, were released just a day before the completion of the Nokia acquisition (see previous story). That deal will vastly expand Microsoft’s scope.

Microsoft announced revenue of $20.40 billion for the quarter (all figures US$). Gross margin, operating income, net income, and diluted earnings per share for the quarter were $14.46 billion, $6.97 billion, $5.66 billion, and $0.68 per share, respectively.

The numbers indicate a decline in most arrears when generally accepted accounting principles (GAAP) numbers are used, but Microsoft says that non-GAAP figures, which show an increase in each area, give a better indication of the company’s performance (see table below).

The most significant factor accounting for the difference in the two sets of figures is the massive $733 million fine Microsoft was forced to pay last quarter to the European Commission for failing to offer users a choice of web browser.

“This quarter’s results demonstrate the strength of our business, as well as the opportunities we see in a mobile-first, cloud-first world,” said Nadella. “We are making good progress in our consumer services like Bing and Office 365 Home, and our commercial customers continue to embrace our cloud solutions.

“Both position us well for long-term growth. We are focused on executing rapidly and delivering bold, innovative products that people love to use.”

The detailed numbers show that Microsoft’s Devices and Consumer revenue grew 12% to $8.30 billion. Windows revenue was steady, growing by 4%, but Office 365 Home grew strongly, adding nearly 1 million subscribers in just three months. It now has 4.4 million subscribers, a fraction of those using the conventional packaged application suite, but growing very quickly.

Microsoft also sold in 2.0 million Xbox console units in the quarter Revenues for the Surface tablet business grew over 50% to approximately $500 million – still small in the big picture. Its Bing search engine now performs 18.6% of web searches in the US, and search advertising revenue grew 38%.

MS 3Q14

Commercial revenue grew 7% to $12.23 billion. Again, Office 365 grew strongly, with revenues more than doubling and seat nearly doubling in the quarter. Azure cloud revenue grew over 150%. Windows volume licensing, Lync, SharePoint, and Exchange, our productivity server offerings, collectively grew ‘double-digits’ (more than 10%.

“Our products and services continue to deliver differentiated business value to our customers, and we continue to win share in areas like cloud services, data platform, and infrastructure management,” said Kevin Turner, chief operating officer at Microsoft. “Our SQL Server business grew double-digits again this quarter, and with the announcements of SQL 2014 and Power BI for Office 365, we offer a unique, comprehensive, end-to-end data and analytics solution.”


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Graeme Philipson

Graeme Philipson is senior associate editor at iTWire and editor of sister publication CommsWire. He is also founder and Research Director of Connection Research, a market research and analysis firm specialising in the convergence of sustainable, digital and environmental technologies. He has been in the high tech industry for more than 30 years, most of that time as a market researcher, analyst and journalist. He was founding editor of MIS magazine, and is a former editor of Computerworld Australia. He was a research director for Gartner Asia Pacific and research manager for the Yankee Group Australia. He was a long time IT columnist in The Age and The Sydney Morning Herald, and is a recipient of the Kester Award for lifetime achievement in IT journalism.