Despite Q2 earnings and revenue dip Microsoft is profiting hugely from cloud

As Reuters reports, the results are better than analyst expectations mainly down to Microsoft’s cloud product success.

Tencent, the Chinese messaging service, has announced in a blog post that it is dropping support for Windows 10 Mobile, the version of the operating system that works on phones. According to Microsoft, “Office commercial products and cloud services” revenue grew five per cent in constant currency, “driven by Office 365 revenue growth of almost 70 per cent”. This means Microsoft’s Lumia Windows Phone has just 1.1% share in a market dominated by Samsung and Apple.

Headline figures for the FY16 Q2 were; a total of $23.8 billion in revenue, generating $5 billion in net income, producing earnings of $0.62 per share.

By the estimates of most analysts, Microsoft comes in second place for the most prominent segment of the market for cloud services, wherein storage and other service are being rented out to clients from data centers, behind Amazon. This shift of critical workloads to Azure not only resonates with our long-term cloud migration thesis, but also signals strong customer preferences for Microsoft’s offerings overall.

CEO Satya Nadella (pictured) said: “Businesses everywhere are using the Microsoft Cloud as their digital platform to drive their ambitious transformation agendas”.

Citing solid holiday wins across the Xbox platform, Bing and the Windows Store – all of which were tied to Windows 10 features and integration – Nadella added that Microsoft would also be banking on Surface’s favorable consumer reception for future growth.

Many prefer Microsoft’s cloud infrastructure as it offers more flexibility to companies moving software about.

Microsoft generates more than half of its revenue from outside the US.

Those peaks and valleys include growth in its cloud business, varied results on the productivity and business processes business, and declines in the unit that includes Windows OEM revenues and devices in its second-quarter results, the company reported Thursday.

IDC said business should improve later this year as companies that had delayed replacing machines before upgrading to Windows 10 make the switch.

Last July, Microsoft introduced Windows 10, raising some hope in the industry of a rebound in PC sales.

In a phone interview, Amy Hood, Microsoft’s chief financial officer, said Microsoft was not yet predicting a turnaround in the PC market. On the flip side, the launch of the Surface Pro 4 and Surface Book saw Surface revenue grow by 29 percent in constant currency.