Microsoft Corp (MSFT.O) has reported a higher than estimated revenue in its quarterly statement that was enhanced by huge sales of the company’s phones, cloud computing services for companies and Surface tablets, and still managed to keep its profits mostly intact.
The report published on Thursday dispelled worries experienced among investors as they feared that the industry’s transference towards lower level cloud computing products was becoming too difficult for time-honored technology forerunners to master.
Microsoft shares have climbed 33% in the last one year and rose another 3% in afterhours trading to close at $46.36.
Daniel Ives, a market analyst with FBR Capital Markets said that, “Due to recent negative earnings outcomes from technology bellwethers including IBM, VMware, EMC, SAP and Oracle, Microsoft is kicking out the trend would tag the September outcomes as a solid achievement.”
Investors were observing Microsoft keenly after SAP (SAPG.DE) and International Business Machines Corp (IBM.N) delivered harsh warnings about Microsoft’s operating profits while they make cautious inroads into cloud, which usually yields smaller margins than tech companies are used to.
Even as Microsoft failed toreveal its cloud-based proceeds for the first fiscal quarter, it said that commercial sales from cloud jumped 128%, and that sales of services on the company’s Azure cloud platform increased 121%.
Possibly even more important is that the company said that the gross profit realized from the unit that comprises Azure jumped 194%, despite increasing costs of infrastructure that includes the enormous expenses of building as well as operating data centers.
During the past four years, Microsoft has recorded a gross profit margin drop to the region of 65% from above 80%, mostly because of the company’s investment in the less rewarding business of manufacturing phones and tablets, but the situation was aggravated by the move into the cloud.
Rick Sherlund, a Nomura analyst, observes that Microsoft is set to reach revenue of $6 billion per year in cloud business soon. These projections would mean that Microsoft is the biggest cloud vendor in the industry. While these figures represents just about 6% of all the expected revenue for this fiscal year, investors are highly alert in a business seen by many as very important going forward.
“Microsoft is the only cloud provider with revenue that is increasing at triple digit proportions in this industry,” said Satya Nadella at a conference call featuring analysts. Nadella also stressed that the company is more engrossed at vending higher margin products through cloud to its customers and not just sell computing power and storage.
He added, “Microsoft’s premium products on Azure bring new monetization openings in data, enterprise mobility, fast analytics, machine learning and media.”
Charge causes drop in profit
Microsoft’s first fiscal quarter profit in fact dropped 13% , largely because of the anticipated $1.1 billion charge associated with mass layoffs which were announced in July that chopped 11% for every share off earnings. As well as that charge, Microsoft, which is the world’s biggest software company, recounted $4.5 billion profit, which is the same as 54 cents a share, as compared to %5.2 billion profit or 62 cents a share that was announced in last year’s quarter.
Thomson Reuters I/B/E/S says that Microsoft easily toppled the 49 cents a share forecast by Wall Street, including the charge. The charge came as a result of the company’s plan that was started in July, to cut about 14% of its workforce (18,000 jobs), with the majority of these cuts emanating from the Nokia phone business that Microsoft acquired recently.
Revenue jumped 25% to hit $23.2 billion, assisted by the Nokia phone business bought in April, which also beat the $22 billion average estimate set by analysts.
Lumia smartphone sales reached $9.3 million in the very first full fiscal quarter since closing the Nokia deal. Sales from the Surface tablet were more than twice the $400 million mark reached in last year’s quarter to hit $908 million.