Microsoft's Services Revenue Lifts Quarterly Results

By Jay Greene Features Dow Jones Newswires

Microsoft Corp. has ridden the cloud-computing wave for several quarters, and once again its revenues surged on the strength of its emerging business of selling web-based, on-demand computing services.

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In the fiscal first quarter, the two biggest pieces of Microsoft's cloud-computing operations -- its Azure infrastructure services and Office 365 online-productivity business -- saw revenue soar 90% and 42%, respectively.

While the software giant doesn't disclose revenue figures for those businesses, it said its commercial-cloud run-rate -- the last month of sales of its Azure and Office 365 products, multiplied by 12 -- hit $20.4 billion.

"They crushed it again," said Stifel Nicolaus & Co. analyst Brad Reback. "These were really strong growth rates."

Those gains continued to offset the company's Windows PC operating-system franchise, which has slowed in recent years. Revenue in Microsoft's More Personal Computing segment, which includes Windows as well as the mobile-phone and gaming businesses, stayed flat at about $9.4 billion. Microsoft doesn't break out revenue for its Windows business. Earlier in October, International Data Corp. reported world-wide PC shipments fell 0.5% in the third quarter.

Overall, Microsoft posted $6.58 billion in net income, or 84 cents a share, compared with a profit of $5.67 billion, or 72 cents a share, a year ago.

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Revenue gained 12% to $24.54 billion.

Analysts surveyed by S&P Global Market Intelligence Microsoft to report per-share earnings of 72 cents on $23.56 billion in revenue.

Shares rose 2.6% to $80.74 in after-hours trading after results beat expectations. If Microsoft shares stay at these levels when markets open Friday, it would be an all-time high. The stock has gained 27% so far this year.

The engines of Microsoft's growth have been its Intelligent Cloud segment, which includes Azure, and its Productivity and Business Processes segment, which includes the Office franchise. Revenue in Intelligent Cloud rose 14% to $6.92 billion, while revenue in Productivity and Business Processes climbed 28% to $8.24 billion.

The Productivity and Business Processes unit also includes Microsoft's Dynamics business, which sells software and services to help sales representatives manage customer relationships and finance departments manage corporate resources. It is a market where Microsoft competes with Salesforce.com Inc., among others, and one in which the company has placed growing emphasis. Dynamics revenue grew 13%, though the company didn't disclose a revenue figure.

Microsoft purchased LinkedIn, the professional social network, in December for $27 billion, in part, to boost the Dynamics business. In the quarter, LinkedIn added $1.14 billion in revenue and posted a $294 million operating loss.

To support its growing cloud business, Microsoft is doling out huge sums to build expensive data centers around the world. In the quarter, Microsoft spent $2.7 billion in capital expenses, with much of that money going toward its data-center expansion. A year ago, Microsoft recorded $2.3 billion in capital expenses.

Microsoft launched a bevy of new Surface computers earlier this year, including a refreshed Surface Pro tablet-laptop hybrid and a lightweight laptop to compete with Apple's MacBook Air.

Microsoft didn't break out specific revenue figures for the devices, but noted that Surface revenue gained 12% in the quarter.

Write to Jay Greene at Jay.Greene@wsj.com

(END) Dow Jones Newswires

October 26, 2017 17:12 ET (21:12 GMT)