Corporate News
Microsoft Corp reported higher-than-expected quarterly revenue, helped
by stronger sales of its phones. PHOTO | JOSH EDELSON | FILE
By BILL RIGBY
In Summary
- The results on Thursday allayed fears of investors in recent days that the industry shift toward lower-margin cloud services was proving hard for established technology leaders to master.
Microsoft Corp reported higher-than-expected
quarterly revenue, helped by stronger sales of its phones, Surface
tablets and cloud-computing products for companies, while keeping its
profit margins largely intact.
The results on Thursday allayed fears of investors in recent
days that the industry shift toward lower-margin cloud services was
proving hard for established technology leaders to master.
Microsoft shares, which have climbed 33 per cent over the past year, rose another 3 per cent in after-hours trading to $46.36.
"In light of recent negative earnings results from
tech bellwethers Oracle, IBM, SAP, VMware, and EMC, Microsoft is bucking
the trend and we would label these September results as a solid
accomplishment," said Daniel Ives, an analyst at FBR Capital Markets.
Investors were keenly watching Microsoft after
harsh warnings from International Business Machines Corp (IBM.N) and SAP
(SAPG.DE) about operating profits as they make tentative inroads into
the cloud, which generally yields thinner margins than technology
companies are used to.
Microsoft did not disclose its cloud-based revenue
for the fiscal first quarter, but said commercial cloud sales rose 128
per cent, while sales of services based on its Azure cloud platform rose
121 per cent.
Perhaps more importantly, it said gross profit
margin in the unit that includes Azure rose 194 per cent, despite rising
infrastructure costs, which includes the huge expense of building and
operating datacentres.
In the last four years, Microsoft's gross profit
margin has drifted down to about 65 per cent from above 80 per cent,
largely due to its move into the less profitable business of making
tablets and phones, but accelerated by the move to the cloud.
Nomura analyst Rick Sherlund figures Microsoft is
on track to hit $6 billion a year in cloud revenue soon, which would
make it the industry's largest cloud vendor by his calculations. That
represents only about 6 per cent of overall expected revenue this fiscal
year, but investors are highly sensitive to a business they see as key
to the future.
"We're the only company with cloud revenue at our
scale that is growing at triple digit rates," said Satya Nadella, on a
conference call with analysts.
Nadella was keen to stress that Microsoft is more
focused on selling higher-margin services via the cloud to its
commercial customers rather than just storage and computing power. "Our
premium services on Azure create new monetization opportunities in
media, data, machine learning, fast analytics, and enterprise mobility,"
he said.
Profit fell on charge
Microsoft's fiscal first-quarter profit actually
fell 13 per cent, largely due to an expected $1.1 billion charge related
to mass layoffs announced in July, which lopped 11 cents per share off
earnings.
Including that charge, the world's largest software
company reported profit of $4.5 billion, or 54 cents per share,
compared with $5.2 billion, or 62 cents per share, in the year-ago
quarter.
Still, it easily beat Wall Street's forecast of 49 cents per share, including the charge, according to Thomson Reuters I/B/E/S.
The charge resulted from Microsoft's plan, launched in July, to
cut 18,000 jobs, or about 14 per cent of its workforce, with most of
those cuts coming from its newly acquired Nokia phone business.
Revenue rose 25 per cent to $23.2 billion, helped by the
phone business it bought from Nokia in April, handily exceeding
analysts' average estimate of $22 billion.
Sales of its Lumia smartphones hit 9.3 million in
the first full quarter since the close of the Nokia deal. Sales of the
Surface tablet more than doubled to $908 million from $400 million in
the year-ago quarter.
-Reuters-
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