Due largely to slower sales of smartphones and its Windows operating system, Microsoft saw revenue decline 12% – from $23.2 billion to $20.38 billion, year-over-year – during its fiscal first quarter. In what is now a familiar theme, increased demand for Microsoft’s enterprise cloud services is helping the company improve its financial fortunes.
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Microsoft’s Cloud Business: As Microsoft shifts from a PC-based company to more cloud-based, analysts are closely watching Microsoft’s cloud business as an indicator of future growth.
“We are making strong progress across each of our three ambitions by delivering innovation people love”, said Microsoft CEO Satya Nadella in a statement. Windows Phone revenues fell by a whopping 54 percent for the quarter, once again highlighting its continued struggles in the smartphone market. While Surface revenue had been climbing quickly over the past year, it’s now fallen to $672 million, down from $908 million in the same quarter of 2015.
As for Office, the company said it added more than three million consumer subscriptions, with 18.2 million consumers now subscribed to Office 365. The other combines data center software with cloud services, in which companies use software housed on Microsoft’s servers.
Cloud sales soared 8% in the third quarter, while Windows and Office fell.
One thing that did go up was net income, which Microsoft reported to have gone from $4.5 billion to $5.4 billion, a 2 percent hike year after year.
Microsoft continues to confound the pessimists who proclaim that its demise in the age of mobile computing and BYOD is just around the corner.
The $0.67 per share figure for the first quarter came in above the $0.59 per share that market analysts expected the company to earn, according to a survey conducted by Thomson Reuters.
The company’s Productivity and Business Processes revenue declined 3 percent, despite Office commercial products and cloud services revenue growing 5 percent and Office 365 revenue growing nearly 70 percent. That segment grew 8 percent year over year, thanks to growth in Azure and premium server products. Windows revenue is now lumped in the same category with online advertising, Xbox gaming and its remaining phone business. As Office 365 grows, it’s actually cannabalizing revenue from the boxed Microsoft Office software.
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Excluding the impact of the strong dollar, revenue in the business rose 14 percent, accounting for about 29 percent of overall revenue in the quarter ended September 30. The results drove Microsoft shares up more than 6 percent in late trading after the earnings announcement. The company is aiming to garner revenue by selling related apps, videogames, Web-search ads and other add-ons, regardless of whether Windows 10 spurs people to buy updated PCs.
