Microsoft highlights cloud strengths in latest financials but Windows Phone sales crash

It’s part of a multi-pronged strategy, along with a push to expand in “cloud” computing, that analysts say is driving the early stages of a financial turnaround, as evidenced by Microsoft’s latest earnings report on Thursday.

The better than expected results were driven mainly by Microsoft’s cloud services division, which reported a 5% year-on-year revenue hike to $6.3bn, accounting for more than a quarter of the company’s total revenue.

Microsoft’s revenue in Productivity and Business Processes, which includes Microsoft Office services, fell two percent, with Microsoft Dynamics revenue growing 11 percent in constant currency. Windows revenue closely tracks sales of personal computers, which fell 10.6% globally in the December quarter from a year earlier, according to research firm IDC.

Microsoft confirmed that its devices revenue sank 22 per cent, which can largely be attributed to its troubled smartphones business.

“Our commercial business executed well as our sales teams and partners helped customers realise the value of Microsoft’s cloud technologies across Azure, Office 365 and CRM Online”. Office 365 now has 20.6 million subscribers.

Microsoft says Windows revenue from PC manufacturers is down 5% – beating the overall decline in the shrinking PC market, but still noteworthy.

After accounting for almost $2 billion in deferred revenue and a few hundred million more in restructuring and integration charges among other adjustments, Microsoft reported non-GAAP earnings per share of $0.78 and revenues of $25.69 billion. Server products and cloud services revenue grew 10%, accounting for currency fluctuations. That distinction belongs to the Surface tablets and new laptop, as well as its cloud platform and Windows 10 software.

Currently, there are 200 million active users of Windows 10, but the company is aiming to have 1 billion users by 2019.

The company’s strengths can be seen in multiple areas, such as its solid stock price performance, increase in net income, reasonable valuation levels, expanding profit margins and good cash flow from operations.

Last year, marketers spent more than $26.5 billion on search advertising. Microsoft’s commercial “cloud computing” service is now the industry’s second-largest, after Amazon’s.