5 reasons why Microsoft has found the silver lining in the cloud

21 Jul 2017

Image: Gabriel Petrescu/Shutterstock

Latest earnings indicate how Microsoft has thrown off its legacy mantle and is becoming a fully fledged cloud player.

Software giant Microsoft has reported Q1 revenues of $23.3bn for the fourth quarter of 2017. This yielded the company an impressive $6.5bn profit for the quarter.

For the full financial year, revenues were $85.3bn, with a profit of $16.7bn. The company was able to return $4.6bn to shareholders in the form of share repurchases and dividends.

“Innovation across our cloud platforms drove strong results this quarter,” said Satya Nadella, Microsoft’s CEO.

“Customers are looking to Microsoft and our thriving partner ecosystem to accelerate their own digital transformations and to unlock new opportunity in this era of intelligent cloud and intelligent edge.”

Microsoft is in full transition mode to the cloud. In recent weeks, it emerged that the company will be laying off up to 4,000 people, mostly in sales and marketing, as it evolves to new ways of selling through the cloud.

Under Nadella’s leadership, this transition is working. Here’s what the results told us.

1. Office 365 is a runaway success for Microsoft

With revenues in the productivity and business processes group reaching $8.4bn in quarterly revenue, Microsoft reported that Office commercial products and cloud services revenues increased 5pc, driven mainly by Office 365, which saw revenues grow 43pc.

Office 365 is a hit among consumers, too, with consumer product and cloud services revenue rising 14pc, and overall consumer subscribers increasing to 27m.

2. The sky is Azure but pretty cloudy, too

On the enterprise front, Microsoft reported that revenues from intelligent cloud increased 11pc to $7.4bn. Server products and cloud services were up 15pc.

However, enterprise services revenues decreased 3pc, with declines in custom support agreements offset by growth in premier support services.

3. Windows 10 is a major cash cow

While revenues in Microsoft’s More Personal Computing unit were down by 2pc to $8.8bn, this was mainly due to the software giant’s disastrous foray into, and subsequent retreat from, mobile phones.

Windows 10 is still the main cash cow for Microsoft, with OEM revenues up 1pc and slightly ahead of the overall PC market.

Windows commercial products and cloud services revenues increased 8pc.

4. Surface is a steady platform

Even though Surface revenue decreased 2pc, this was down to product life-cycle transitions.

It is now five years since Microsoft entered the personal computer hardware business with Surface RT, and the line-up has flourished into a fairly rounded family that consists of hybrid tablets, Pro tablets such as the new Surface Pro 4, the Surface Laptop, the Surface Book with detachable screen, the 28in Surface Studio all-in-one desktop and the Surface Hub interactive white board.

5. Microsoft has its game on

It is almost 16 years since Microsoft got into the video game console business with the Xbox, and the brand is now one of the most dominant platforms in the gaming industry.

According to the latest results, gaming revenues increased 3pc as strength in Xbox software and services offset lower hardware revenue.

But it is the hardware part that is truly interesting to watch. Microsoft recently revealed that the next Xbox will be known as Xbox One X and will feature 4K and high-fidelity VR capabilities.

The beefed-up Xbox, previously codenamed Scorpio, is part of a move by Microsoft to ultimately enable players to play their favourite games seamlessly across Windows 10 and Xbox devices, with much of the action taking place in the cloud.

Microsoft building. Image: Gabriel Petrescu/Shutterstock

John Kennedy is a journalist who served as editor of Silicon Republic for 17 years