Microsoft Corp (MSFT.O)
said sales of its flagship cloud product doubled in its first quarter,
propelling earnings above analysts' estimates and sending its shares to an
all-time high, breaking past a level hit in 1999 at the peak of the tech stock
bubble.
The company's shares have doubled since August 2013 with Chief
Executive Satya Nadella restoring investor confidence by focusing on mobile and
cloud computing rather than PCs.
Long known for its Windows software, Microsoft has shifted focus to the
cloud where it is dueling with larger rival Amazon.com Inc (AMZN.O) to control the still fledgling market.
Its jump in revenue underscores how businesses around the world are turning to
new applications in the cloud and leaving once critical software programs and
other hardware in the dust.
Shares of Microsoft rose as much as 6.2 percent to $60.79 in
after-hours trading. They later pared gains to $60.43, still adding nearly $25
billion to its market value.
The Redmond, Washington-based company said sales from its flagship
cloud product Azure, which businesses can use to host their websites, apps or
data, rose 116 percent. Revenue for its broader "Intelligent Cloud"
business rose 8.3 percent to $6.38 billion, beating analysts' average estimate
of $6.27 billion, according to research firm FactSet StreetAccount.
"We are not just building or moving (clients') IT," Nadella
said on an analyst call. Customers "are building new digital services for
hyper scale. And that's what is probably unique in terms of what has changed
year over year for us.
"It's not just the Silicon Valley startups anymore; it is the core
enterprise that is also becoming a digital company. And we are well-positioned
to serve them," he said.
The company forecast that sales for its Intelligent Cloud business will
be between $6.55 billion and $6.75 billion in the current quarter, compared
with $6.34 billion in the same period a year earlier.
"There’s a huge runway for them to show growth," said Trip
Chowdhry, managing director of Global Equities Research.
HEAD IN THE CLOUDS
Early investment in the cloud, coupled with machine learning and
applications that can scale at different levels, have set Microsoft and Amazon
Web Services apart from smaller rivals - and precipitated the decline of older
software companies, Chowdhry said.
Microsoft had an effective monopoly on computing software in the 1990s
and was for some time the world’s most valuable publicly traded company.
But its power waned in the 2000s after a bruising battle with the U.S.
Department of Justice over how it used its monopoly power to squeeze
competitors.
Co-founder Bill Gates stepped down as CEO early in 2000 and Microsoft
spent the next decade and a half in a strategic dilemma as it clung to its
PC-centric view of the computing world while it was outflanked by Google (GOOGL.O) in the internet and Apple Inc (AAPL.O) in smartphones.
Earlier this year, Nadella made headlines when he orchestrated
Microsoft's biggest-ever deal, agreeing in June to buy the social network for
professionals LinkedIn Corp (LNKD.N) for $26.2 billion.
But the focus on mobile applications and the cloud's blockbuster growth
masked dips in sales for other units of the company in the quarter.
Worldwide PC shipments fell 3.9 percent in the quarter ended Sept. 30,
according to research firm IDC, although that was much less than the 7.1
percent it had previously estimated.
Revenue in the unit that includes Windows software and the company's
struggling mobile business fell 1.8 percent to $9.29 billion. Microsoft
forecast the division will have sales of up to $11.6 billion in the current
quarter - well below the $12.7 billion it posted for the unit a year earlier.
The decline in Lumia smartphone sales was a "blemish," said
Patrick Moorhead of Moor Insights & Strategy, albeit an expected one.
"At some point that Windows number needs to start to rise, but
given market declines, it’s hard to expect that," he said.
Including deferred revenue from Windows 10, Microsoft earned 76 cents
per share in the just-ended first fiscal quarter of 2017, beating analysts'
average estimate of 68 cents, according to Thomson Reuters I/B/E/S.
On an adjusted basis, Microsoft reported revenue of $22.33 billion,
above the average estimate of $21.71 billion.
(Reporting by Anya George Tharakan in Bengaluru and Jeffrey Dastin in
New York; Additional reporting by Bill Rigby; Editing by Bernard Orr)
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