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Microsoft Profit and Revenue Fall, but Cloud Computing Grows


A billboard for Windows 10 at a product event in Seoul, South Korea, last July. Credit Jung Yeon-Je/Agence France-Presse — Getty Images

SEATTLE — Satya Nadella has put cloud computing at the center of Microsoft’s strategy. It is a move that looks to be paying off, at least in the eyes of investors.

On Thursday the company said its revenue and profit fell in the last quarter. But it mattered little, as Microsoft made more from cloud computing, and its stock jumped more than 5 percent immediately after the numbers were released.

The results underscored the good and bad trends that have come to characterize Microsoft’s financial results in recent years. On the negative side, there is the floundering personal computer business, which is hurting profits from longtime Microsoft software businesses, especially Windows. On the positive, the company’s cloud business continues to grow, giving investors hope that Microsoft will remain relevant for years to come.

The success of Microsoft’s cloud business under Mr. Nadella, its new chief executive, has put the company’s stock back in favor with investors. Even with recent anxiety in the stock market, Microsoft’s shares are up more than 28 percent for the past year, while shares in rivals like Apple, Oracle and IBM have declined by double digits.

The company reported net income for the fiscal second quarter ended Dec. 31 of nearly $ 5 billion, or 62 cents a share, compared with $ 5.86 billion, or 71 cents a share, during the same period a year earlier.

Revenue fell to $ 23.8 billion, down from $ 26.47 billion a year ago

The figures in the recent quarter reflected a huge deferral of revenue, almost $ 1.9 billion, related to Windows 10, the company’s latest operating system. Although it collects all the cash up front from selling the software to PC makers and others, accounting rules dictate that the company has to spread its recognition of the money over the life of the product.

Without that deferral, Microsoft had $ 25.69 billion in revenue and 78 cents a share in earnings, better than the average forecast of analysts surveyed by Thomson Reuters of 71 cents a share in earnings and $ 25.26 billion in revenue.

Even without the Windows deferral, Microsoft’s numbers declined from the previous year, in large part because the company in July sharply scaled back the ambitions of its money-losing smartphone business, acquired from Nokia. The company’s phone revenue plummeted 49 percent when excluding foreign currency fluctuations as a result of the changes, which included scaling back the number of smartphones it sells.

Microsoft’s cloud business is what made investors happy. The company’s intelligent cloud group, which includes its Azure service, rose 5 percent to $ 6.3 billion. It now has 20.6 million consumer subscribers to Office 365, the cloud version of its productivity applications, up from 9.2 million a year earlier.

Last July, Microsoft introduced Windows 10, raising some hope in the industry of a rebound in PC sales. That rebound has not materialized yet.

Global shipments of new PCs declined 8.3 percent during the fourth quarter compared with a year earlier, the research firm Gartner recently reported.

The revenue Microsoft gets from PC makers for Windows declined 5 percent in the quarter, excluding foreign currency impacts. The company’s revenue from its own Surface line of computers and tablets rose to $ 1.35 billion from $ 1.1 billion a year earlier.

The company no longer charges most customers to upgrade existing computers to Windows 10, hoping to get as many people as possible running the latest operating system and wooing developers back to Windows. The company has lost considerable influence among developers, who have gravitated to Apple’s iOS and Google’s Android operating systems.

In a phone interview, Amy Hood, Microsoft’s chief financial officer, said Microsoft was not yet predicting a turnaround in the PC market. But she said the company believed its Windows business had a chance at growing through other means, including the revenue it generated through its online app store, search advertising and other sources.

“Our expectation for the PC market is roughly in line with most analysts,” Ms. Hood said. “For the next year, we understand the market is not likely to grow, but we can still grow.”


NYT > Technology

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