Covering Scientific & Technical AI | Thursday, October 3, 2024

Azure Cloud Lifts Microsoft Revenues 

Microsoft's otherwise lackluster quarterly earnings report, weighed down by the closing of its deal to buy the Nokia smartphone business, nevertheless showed sustained growth in its Azure cloud.

Revenue for the fiscal fourth quarter ending June 30 totaled $23.38 billion, an increase of 18 percent over the same period last year. The lion's share came from commercial licensing revenue, with rose 5.6 percent to $11.22 billion. Meanwhile, operating income rose 7 percent to $6.48 billion.

The pre-tax costs associated with the restructuring of its Nokia unit, including about 12,500 layoffs, are estimated to run between $1.1 billion and $1.6 billion, but will not be recorded until fiscal 2015.

Whole the closing of the Nokia acquisition in April eroded Microsoft's earnings, its cloud business is booming. Microsoft said commercial cloud revenue grew 147 percent with an annualized run rate of more than $4.4 billion.

That revenue level is comparable to rival Amazon Web Services. Microsoft's cloud revenues are heavily driven by Office365, Xbox, and other services that it sells in addition to raw compute, storage, and network infrastructure. Google offers both infrastructure and platform services, as does AWS, but Google is probably a lot smaller. And AWS, for all of the services it offers atop its infrastructure, is probably still selling a lot of raw capacity.

"I'm proud that our aggressive move to the cloud is paying off," Microsoft CEO Satya Nadella stressed in a statement, adding, "our commercial cloud revenue doubled again this year to a $4.4 billion annual run rate."

The software giant also reported that server products revenue that includes Azure grew 16 percent year-on-year, with double-digit growth reported for SQL Server and System Center. The latter is designed to help enterprise IT administrators manage Windows Server and Hyper-V as well as Windows client machines.

Most of Microsoft's cloud revenue is recorded in an amorphous "commercial other" category. The company said revenue increased 44 percent over the same period last year to $688 million. The increase was attributed to higher revenues for commercial cloud and enterprise services. Meanwhile, gross margins in this category rose 106 percent to $355 million.

Commercial cloud services revenue was driven by what Microsoft reported was triple-digit growth in Microsoft Azure and commercial Office365. Meanwhile, enterprise services revenue grew 11 percent to $125 million. (The remaining part of the cloud revenues comes from software that Microsoft sells to companies building their own internal clouds or third-parties building public clouds using its wares.)

While these sectors still account for a relatively small proportion of Microsoft's overall business, they bring the most upside for a company transitioning into the post-PC era.

On the other side of the ledger, Microsoft said research and development expenses rose 12 percent to $340 million. It noted that the Nokia acquisition contributed $275 million to the total.

Capital expenditures in the quarter totaled $1.33 billion. Microsoft did not break out these investments, but did say they are "supporting the global expansion of our cloud services." Microsoft is spending a lot on cloud to foster its growth; it is hard to say if it is breaking even or not based on the financial figures provided.

Nadella told Microsoft partners the day before the company announced huge layoffs, “We now need to redefine what it means to build an ecosystem in a mobile-first, cloud-first world. That is what we will continue to push for.”

About the author: George Leopold

George Leopold has written about science and technology for more than 30 years, focusing on electronics and aerospace technology. He previously served as executive editor of Electronic Engineering Times. Leopold is the author of "Calculated Risk: The Supersonic Life and Times of Gus Grissom" (Purdue University Press, 2016).

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