Cloud gives Microsoft Q4 lift as sales top estimates

Microsoft Corp.’s cloud-fuelled turnaround persisted in the fiscal fourth quarter, when sales and profit got a boost from customers signing up for more internet-based storage, processing and Office productivity software.

Profit in the period ended June 30 rose to US$8.87 billion, or US$1.14 a share, topping the US$1.08 average per-share estimate of analysts polled by Bloomberg. Sales climbed 17 per cent to US$30.1 billion, Microsoft said Thursday in a statement, higher than predictions for US$29.2 billion.

Chief executive Satya Nadella has been overseeing steady growth in the company ’s Azure and Office 365 cloud businesses. Surveys of customer chief information officers by both Morgan Stanley and Sanford C. Bernstein published in the past month show an increase in companies signing up for or planning to use Microsoft’s cloud products. Revenue from cloudcomputing platform Azure rose 89 per cent in the quarter, while sales of web-based Office 365 software to businesses climbed 38 per cent. Microsoft also saw a bump from relative improvements in the corporate personal-computer market, which has been stagnant for years.

“Azure has been hot and Office 365 too,” said Dan Morgan, a senior portfolio manager at Synovus Trust, which owns Microsoft shares. “Microsoft has made huge strides and done wonderful things to turn the company around. They were on a death track with hanging everything on the personal computer.”

Microsoft’s shares rose about 1.5 per cent in extended trading after the report. They had closed at US$104.40 in New York. Stock in the Redmond, Wash.-based company rose eight per cent during the quarter, exceeding the 2.9-percent increase in the Standard & Poor’s 500 Index. Shares reached new records throughout the period, and have continued to move higher since the quarter’s close.

Commercial cloud sales rose 53 per cent to US$6.9 billion, the company said in slides posted on its website. Gross margin for that business widened by six per centage points to 58 per cent. Microsoft has been posting better margins as it adds customers, enabling it to run services more efficiently and spread costs across more clients. With cloud demand rising, Microsoft has also said it will continue to invest.

In a Morgan Stanley poll of 100 U.S. and European CIOs, 34 per cent of respondents said they planned to buy a more expensive tier of Office 365 software in the next one to two years. Those using or planning to use Azure rose to more than 70 per cent. Bernstein found 62 per cent of CIOs said they used Azure as of June, up from 50 per cent a little more than a year prior. That compares with 60 per cent for market leader Amazon Web Services and 23 per cent for Google cloud.

Still, the jump in Azure revenue decelerated from the 93-per-cent growth Microsoft posted in the prior period. Market-share surveys generally show Azure lagging far behind Amazon, which is at least three times bigger by that measure. The two companies are adding new cloud services and duking it out for customers as No. 3 U.S. player Google tries to catch up. Earlier this week, Microsoft said Walmart Inc., an Amazon retail rival, signed a five-year cloud deal involving Azure and Office 365.

Sales of Intelligent Cloud products — Azure and server software — rose 23 per cent to US$9.61 billion, above the US$9.07 billion average estimate of four analysts polled by Bloomberg. Productivity software, mainly Office sales, rose 13 per cent to US$9.67 billion. That compares with the US$9.64 billion average estimate.

While Microsoft has reorganized its structure and de-emphasized its Windows PC operating system efforts — once the company ’s flagship business — corporate sales of the software still generate considerable revenue.