Microsoft shares boosted by growth in cloud services

For its 2016 fiscal year second-quarter, the Redmond-based company made $6.3 billion in net income on $25.7 billion in revenue.

Excluding the impact of revenue deferrals and restructuring charges, adjusted earnings rose to 78 cents from 70 cents a year earlier. In the last quarter the company sold 4.5 million Lumia devices compared to 10.5 million at the same period previous year, representing a massive 57 per cent decline.

Total revenue, however, fell 10.1 percent to $23.80 billion, squeezed by a strong dollar as well as a weak personal computer market that has reduced demand for Microsoft’s Windows operating system. The segment was hurt by lower Windows revenue and the company’s decision to scale back its smartphone business, offset in part by a 29% increase in Surface revenue. Server products and cloud services revenue grew 10%, accounting for currency fluctuations.

Microsoft is also distributing more of its software through online subscriptions, which it hopes will provide a reliable stream of revenue and the opportunity to learn users’ preferences.

On the earnings call, CEO Satya Nadella said Microsoft is seeing “network effects” in its cloud business; for example, some customers are using Azure to funnel Office 365 data into other apps, he said. But the big highlight was Azure revenue, which grew 140 percent, including revenue from Azure premium services growing almost 3x year-over-year.

Over one third of the Fortune 500 have chosen our Enterprise Mobility solutions, up almost 3x. “Microsoft’s cloud story continues to be solid; while Amazon missed a bit, Microsoft continues to show Wall Street it knows how to set and meet expectations, which the Street values highly”, Merv Adrian, research vice president of Information Management at Gartner, told eWEEK. However, we do suspect that an October launch is very likely, as this is the month Microsoft usually holds an event, which was when the Surface Pro 4 was released. Mobile phone revenues were down 49 percent. This was led by a decline in Windows OEM sales, down by five per cent in constant currency as PC sales continued to decline in the quarter, despite the introduction of Windows 10 at the end of July.

The company said it will provide financial outlook when it holds a conference call with analysts later on Thursday.