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By | Iain Thomson 21st April 2016 23:25

Stalled cloud growth, software flatlining, hated Lumias unsold... It's all fine, says Microsoft CEO

In Soviet Redmond, phones rain on cloud

Microsoft is putting a brave face on disappointing third-quarter earnings that saw profits fall 25 per cent year-on-year and cloud revenues failing to rise fast enough to offset losses in other areas.

Earnings per share were $0.62 non-GAAP, down 23 per cent from 2015, compared to analysts' estimates of $0.64.

"We had a solid quarter," said CEO Satya Nadella during the earnings call. "Azure saw double-digit growth for the seventh straight quarter. It remains clear we are one of the two leaders in the market."

In after-hours trading, Microsoft's shares dropped by nearly 4 per cent on the news that its earnings per share were below analysts' estimates. The GAAP figures for the three months to the end of March are as follows:

  • Revenue was $20.5bn, down 6 per cent over the last year.
    • Revenue in Productivity and Business Processes grew 1 per cent (6 per cent in constant currency) to $6.5bn. Sales of Microsoft Office products and cloud services for businesses grew 7 per cent in constant currency, thanks to Office 365 revenue growth of 63 per cent in constant currency. For consumers, Office revenue grew 6 per cent in constant currency. Office 365 consumer subscribers increased to 22.2 million.
    • Revenue in Intelligent Cloud grew 3 per cent (8 per cent in constant currency) to $6.1bn. Server products and cloud services revenue increased 5 per cent in constant currency. Azure sales grew 120 per cent in constant currency with usage of Azure compute and Azure SQL database more than doubling from last year.
    • Revenue in Personal Computing grew 1 one per cent (up 3 per cent in constant currency) to $9.5bn. Surface revenue increased 61 per cent in constant currency to $1.1bn, thanks to the Surface Pro 4 and Surface Book. Phone revenue plummeted 46 per cent in constant currency: Microsoft only sold 2.3 million Lumia devices in the quarter, down 73 per cent year on year.
  • Operating income fell 20 per cent from the third quarter of 2015 to $5.3bn.
  • Net income for the quarter were $3.8bn, down 25 per cent for the year.

"Our continued operational and financial discipline drove solid results this quarter," said Amy Hood, Redmond's CFO. "We remain focused on investing in our strategic priorities to drive long-term growth."

Microsoft's intelligent cloud division was the star performer, with revenues up 3 per cent, driven in part by a 120 per cent increase in Azure billing which, while impressive, was down from 140 per cent growth last quarter.

As part of the division, Microsoft doubled its enterprise mobility customers to 27,000 and reported nearly a four-fold increase in buyers over the last 12 months.

The personal computing division saw revenues inch up one per cent to $9.5bn, with core Windows OEM revenues down two per cent, buoyed slightly by revenues from the Surface line rising 61 per cent. Commercial Windows sales fell 11 per cent but non-Pro sales rose 15 per cent.

Xbox Live users rose 26 per cent year on the year, bringing more gamers into the fold, but the hemorrhaging Windows Phone platform lost 46 per cent for the quarter and Lumia sales fell by 73 per cent quarter to quarter.

In the productivity and business processes division, revenues were up a single percentage point on the quarter at $6.5bn. Strong Office 365 for business growth in the business and consumer sectors helped, and Dynamics CRM Online seats grew 63 per cent in the last 12 months. ®

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