$100bn worth of reasons why cloud has been the silver lining for Microsoft

20 Jul 2018

One Microsoft Place, Leopardstown. Image: Naoise Culhane Photography

Powerful cloud sales enable Microsoft to surpass expectations and triumph in a cloud-first world.

A surge in customers signing up for cloud and Office productivity services helped Microsoft to deliver a knock-out quarter and surpass $100bn in full-year revenues.

In its fourth quarter earnings, Microsoft reported sales of $30.1bn and a profit of $8.9bn, up from $23.3bn and $6.5bn, respectively, a year ago.

This punches way above analyst expectations of $29.1bn. Earnings per share came in at $1.14, ahead of expectations of $1.08.

The results show that CEO Satya Nadella’s quiet focus on turning Microsoft into a cloud-first company is working.

“We had an incredible year, surpassing $10obn in revenue as a result of our team’s relentless focus on customer success and the trust customers are placing in Microsoft,” Nadella said.

“Our early investments in the intelligent cloud and intelligent edge are paying off, and we will continue to expand our reach in large and growing markets with differentiated innovation.”

Nadella’s subtle cloud vision is paying dividends


Delivering the cloud vision, Satya Nadella. Image: Microsoft

The Microsoft of 2018 is a different beast to what Nadella took on when he became CEO in 2014.

What he encountered was a company that was trying to recover from having gone down a few too many strategic rabbit holes, including a disastrous attempt at catch-up in smartphones with the acquisition of Nokia’s handset unit which cost the company close to $8bn in losses and, ultimately, thousands of job cuts.

Under previous CEO Steve Ballmer, Microsoft laughed off the threat that arrived when Apple revealed the iPhone in 2007, which signalled the arrival of the apps economy. Despite achieving overwhelming success with Windows 7 in 2009, the smartphone was on its way to becoming the first screen of the latest epoch in the computing continuum.

When Nadella arrived in 2014, he had to re-engineer the entire company culturally and restore its focus on what it does best: making good software. He divided Microsoft into three core divisions: Productivity and Business Processes, Intelligent Cloud and More Personal Computing.

This involved sacrificing sacred cows, becoming more open to open source, and reorienting popular Microsoft apps and platforms like Office 365 to perform in a mobile-first world dominated by Android and iOS.

Microsoft’s latest operating system, Windows 10, is flourishing as both a desktop and tablet operating system, the company bought LinkedIn two years ago for $26bn and it is cloud that is the main cash cow for the Seattle software giant.

In its latest financial results, Microsoft reported that its Productivity and Business Processes group derived revenues of $9.7bn. Office commercial revenue grew 8pc, Dynamics revenue grew 11pc, LinkedIn revenues were up by 37pc and Office 365 subscribers stand at 31.4m paying customers.

Microsoft’s Intelligent Cloud business grew revenues to $9.6bn, including growth in server products and cloud services revenues by 26pc. Enterprise Services were up by 8pc and Azure revenues soared by a whopping 89pc.

Microsoft revealed that revenues in its More Personal Computing group also grew by 17pc to $10.8bn. Windows OEM revenues increased 7pc, Windows commercial revenue surged 23pc, and search advertising revenues were up 17pc. Revenues from the company’s Surface device group increased 25pc while gaming revenues, largely from Xbox software and services, were up by 39pc.

In recent weeks, the company demonstrated its dexterity in tech matters by acquiring GitHub and also revealed a low-cost personal computer aimed at workers and students called the Surface Go, which will retail in Ireland from next month for €460.

If anything, cloud has been Microsoft’s silver lining after a few years too many in the wilderness and Ireland happens to be in the driving seat with major data centre operations in west Dublin.

Forget mobile-first, Nadella has re-engineered Microsoft to triumph in a cloud-first world.

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