Microsoft’s Q2 Financials: Cloud Up, Windows Down

Windows phones have not been selling well and Microsoft is now seeing a decline in both its smartphone business – which had sales of 4.5 million – and its “dumb” phone business.

Microsoft generated $25.7 billion in revenue for Q2 2016, largely driven by its Azure and Office 365 cloud offerings. Within this unit, the server products and cloud services revenue grew 10 percent and “Azure Cloud” revenue grew 140 percent.

Microsoft Corp.’s fiscal second quarter showed that its cloud-computing efforts are paying off with major revenue growth and improved profit margins, offsetting declines in its PC businesses.

Last quarter, Microsoft also announced that its commercial cloud business was on an $8.2 billion annual run rate, up from $8.2 billion in its last financial quarter of 2015. Part of this might be due to Microsoft’s changed strategy, which has seen it opt to lay-off thousands of workers and focus on building a smaller number of Windows Phones models, as opposed to the broad range of phones that Nokia built.

“Businesses everywhere are using the Microsoft Cloud as their digital platform to drive their ambitious transformation agendas”, said Microsoft CEO Satya Nadella in a statement. Including revenue deferred to future quarters, however, the company’s earnings would have been 78 cents a share.

Productivity and Business Processes would have produced revenue growth if currency exchange values had been constant.

Phone revenue fell 49% in constant currency, while search ad revenue climbed 21% in constant currency.

Revenue for Microsoft’s productivity segment, which includes the cloud version of Office and a conventional version, rose 5% on a constant-currency basis, Microsoft said.

Office 365 had a decent quarter, adding 2.4 million subscribers to hit 20.6 million.

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.

Xbox Live monthly active users grew 30pc year-over-year to a record 48m users. Nadella claims that there is “real excitement” for coming Windows 10 deployments for business customers.

Microsoft also saw a boost with its Surface tablet and the Xbox game console in the holiday quarter.