Investors continued to punish software giant Microsoft (MSFT – Get Report) Friday after the company missed estimates on sales and earnings in its fiscal third quarter because of slumping demand for its PC-related products, an unforeseen tax charge and a weak dollar.
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Revenue in Microsoft’s Intelligent Cloud segment, meanwhile, grew 3 per cent (up 8 per cent in constant currency) to US$6.1 billion, with Microsoft stating Azure revenue grew 120 per cent in constant currency. Operating income was $5.3 billion, a 20 percent drop, net income was $3.8 billion, down 25 percent, and earnings per share were $0.47, a 23 percent decline.
Intelligent Cloud unit revenue, made up of Azure and server software, will be $6.5 billion to $6.7 billion in the fourth quarter, the company said on a conference call.
Further revenue growth was seen in dynamics products and cloud services which grew by 9% in constant currency year-over-year. Microsoft said the overall slowdown in IT infrastructure spending will bring its annual results in a bit lower than expected.
But revenue from business software and Internet-based services, known as cloud computing, didn’t grow as much as analysts expected.
Revenue fell to $20.5 billion from $21.7 billion the year before. Windows 10 has been one of the company’s fastest growing operating systems, and Nadella claims it is now installed on more than 270 million devices. The company’s Q3 2016 figures were slightly below the projections of Wall Street analysts polled by Thomson Reuters, which expected revenue of $22.09 and EPS of $0.64.
“Overall, we had a solid quarter”, said Microsoft CEO Satya Nadella in his opening remarks during Thursday’s earnings call.
The number of Microsoft’s Commercial Office 365 customers rose by 57 percent in the third quarter to pass 70 million monthly active users, Nadella said.
And in the areas customers are watching most closely – cloud computing – the story is pretty good.
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“Microsoft’s cloud business is gaining sales and momentum in the marketplace, so I am willing to give them the benefit of the doubt on this quarter’s missed external expectations”, said Matt McIlwain, a venture capitalist at Madrona Venture Group who closely watches Microsoft. The company’s share price is down about 1 percent over the a year ago, as software maker Microsoft’s stock rose about 30 percent. Furthermore, several services of Microsoft, including Office 365 business, Office 365 consumer, Bing and Xbox Live, also do not operate on Azure. Other factors affecting revenue included a huge 73 percent drop in revenue from the company’s Lumia smartphone sales compared to previous year, and the weakening PC market which saw Windows OEM revenue decline 2 percent in constant currency. Enterprise Services revenue was up 11 percent (15 percent constant currency).
