Microsoft revenue lifted by cloud sales to businesses

Profits for the quarter were down, however

Image credit: IDG News Service/Kathleen Keough

Strong sales of cloud products to businesses helped lift Microsoft's revenue by 18% last quarter, though its profits declined.

Revenue for the quarter ended June 30 was $23.4 billion, up from $19.9 billion last year and ahead of the consensus analyst estimate of $23 billion, according to a poll by Thomson Reuters.

The revenue figure includes $2 billion from the Nokia Devices and Services business that Microsoft acquired. That deal closed 25 days after the start of the quarter.

Net income was $4.6 billion, or $0.55 per share, down from $4.9 billion, or $0.59 per share, a year earlier, and 5 cents below the Wall Street analysts' consensus expectation. On a per-share basis, profit was down 7% year over year, including an $0.08 loss from the Nokia business.

"I'm proud of the results we delivered this quarter and across the fiscal year," CEO Satya Nadella said during a conference call to discuss the earnings report.

Nadella said commercial cloud revenue grew almost 150% year over year to a $4.4 billion annual run rate, driven primarily by sales of Office 365, the Azure Infrastructure- and Platform-as-a-Service products and Dynamics CRM Online. Microsoft is switching its focus to selling more cloud services and away from on-premises software.

The Devices & Consumer Division grew its revenue 42% to $10 billion, including the $2 billion from Nokia phone hardware.

Meanwhile, the Commercial Division saw its revenue grow 11% to $13.5 billion.

The results for the quarter -- the fourth of Microsoft's fiscal year -- don't include any impact from the 18,000 job cuts Microsoft announced last week and which will be carried out over the next 12 months.

In the new fiscal year, which started July 1, Microsoft expects pre-tax costs from the layoffs in the range of $1.1 billion to $1.6 billion. The layoffs, amounting to about 14% of the company's staff, are the largest in Microsoft's history. The majority will come from Microsoft's recently acquired Nokia business.

The Surface Pro 3 started shipping in late June and sales are outpacing earlier versions. Microsoft positions it as a device that can double as a tablet and a laptop. The Surface Pro 3's geographic availability will be broadened this summer, according to CFO Amy Hood.

She added that a new "form factor" that was in the works has been scrapped, likely referring to a smaller tablet that was widely rumored to be in development.

Sales of on-premises server and system management products like SQL Server and System Center grew 6% to $11.22 billion, while Windows volume licensing revenue climbed 11%.

The Bing search engine has been growing its usage and search ad revenue and is expected to become profitable in fiscal year 2016, Nadella said. That starts next July.

Regarding Windows, Nadella said its next major version -- known informally as Windows 9 -- will be a "single, converged" OS for "screens of all sizes."

"We will unify our stores, commerce and developer platforms to drive a more coherent user experience and a broader developer opportunity," he said.

He was basically reiterating Microsoft's strategy to simplify development of Windows apps, in order to draw more developers and grow the apps collection for the Windows 8.1 "Modern" interface, which is based on tiles and optimized for touch.

He didn't say when the new version of Windows will ship but added that details will be provided in the coming months.

Juan Carlos Perez covers enterprise communication/collaboration suites, operating systems, browsers and general technology breaking news for The IDG News Service. Follow Juan on Twitter at @JuanCPerezIDG.

Copyright © 2014 IDG Communications, Inc.

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