Azure’s revenue, reported under Microsoft’s Intelligent Cloud division, grew 120 percent in constant currency, with usage of Azure compute and Azure SQL database more than doubling year-over-year.
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“We would have liked to have seen 7 to 9 percent growth”, Dan Morgan, a portfolio manager at Synovus Trust who holds Microsoft shares, said of intelligent cloud revenue. But the costs associated with supporting Azure have grown as well.
Microsoft Chief Financial Officer Amy Hood attributed the miss to a “catch up” tax adjustment to account for an expected increase in the full-year tax rate.
The slowing growth in cloud computing coupled with the earnings miss spooked investors. But the earnings report sent shares down more than 5 percent in after-market trading, after closing at $55.78. Revenue in the segment edged up 0.9% to $9.46 billion, while operating profit jumped 57%.
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A pattern which was repeated this quarter as well was the performance of Microsoft phones as phone revenue declined by 46%.
Microsoft states that Windows 10 is now active on over 270 million devices.
Microsoft’s own Surface line of computers remains a bright spot. Sales at its Productivity division, which includes Office 365, rose 1% to 6%, with currency effects removed, to $6.5 billion while operating profit slipped 21% to $2.99 billion. Growth of Office 365 subscription is important for Microsoft as the company is using the Office 365 channel to sell Azure cloud.
Over the last three months Microsoft sold only 2.3 million Lumia smartphones, a massive 73 percent drop when compared to the same period a year ago. Microsoft Office emerged to be a standout performer in the segment after revenue from the consumer product increased 3%.
“For the first time, we’re opening up Office 365 not just as an enterprise tool in the service, but as a developer platform”, he said. And because Microsoft delivers regular updates over the Internet, analysts say that should help the company sell extra features, particularly to business users.
During its earnings call Friday, Microsoft admitted the outlook for the Lumia is pretty grim – at least for the next quarter. Phone revenues were down a hefty 46 per cent from a year ago.
But many analysts were expecting Microsoft to do better. All of those estimates are below analyst expectations.
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The tech firm recorded revenue of US$20.5-billion for the quarter ending 31 March 2016, with operating income and net income standing at US$5.3-billion and US$3.8-billion respectively.
