Microsoft’s cloud-driven earnings are sky-high

27 Oct 2021

Image: © gguy/

With jumps in revenue across almost all services, Microsoft is riding high on the back of digital transformation and hybrid working.

Microsoft has stunned analysts with a record-breaking performance in its first fiscal quarter, which saw profits soar to more than $20bn.

This is the first time Microsoft has crossed the $20bn mark in a quarter, beating the previous record by more than $4bn according to MarketWatch. Net income was $20.5bn, a 48pc increase from last year.

Driven by a surge in demand for digital transformation and hybrid working, revenue skyrocketed to $45.32bn, up from last year’s $37.15bn and beating Refinitiv expectations of $43.97bn, according to Reuters.

“The case for digital transformation has never been more urgent or more clear. Digital technology is a deflationary force in an inflationary economy,” CEO Satya Nadella told shareholders on the earnings call.

“Businesses – small and large – can improve productivity and the affordability of their products and services by building tech intensity.” He added that 78pc of Fortune 500 companies now use Microsoft’s hybrid offerings.

Microsoft cloud services stood out as one of the tech giant’s strongest performers, riding on a surge in demand driven by the pandemic. Intelligent cloud revenue jumped by 31pc, while its flagship Azure business and other cloud services grew by 48pc, beating expectations but representing a slight slowdown, according to CNBC.

“The Microsoft Cloud delivers the end-to-end platforms and tools organisations need to navigate this time of transition and change,” added Nadella.

Office consumer products and cloud services were up 10pc, with Microsoft 365 subscribers rising 19pc to 54.1m globally. Business versions of Office and associated cloud services saw an 18pc rise in revenue, while Office 365 jumped by 23pc.

LinkedIn revenue was up by 42pc, which Microsoft said was driven by a corresponding growth in its marketing solutions business of 61pc. This comes after LinkedIn announced earlier this month that it is pulling back on its full service in China.

Overall, the productivity and business processes unit contributed more than $15bn in revenue, up 22pc over last year.

Supply chain crunch

Sales in Microsoft’s personal computing business grew to $13.3bn from $11.85bn last year, despite the ongoing global chip shortage and its associated supply chain disruption. Sales of Windows to device manufacturers rose by 10pc, ahead of the launch of Windows 11 earlier this month.

However, supply constraints have impacted Windows sales and are expected to continue affecting other products such as its flagship Surface laptops as well as Xbox gaming consoles.

Xbox hardware revenue was up 166pc and content and services revenue was up 2pc. Microsoft said it sold more Xbox S and X consoles in the first quarter than it expected, driven by a surge in demand for home entertainment as more people stayed home during the pandemic.

Amy Hood, VP and CFO at Microsoft, said in the call with shareholders that demand for Xbox consoles continues to exceed supply and that is expected to last until Christmas. “Console sales will continue to be impacted by supply chain uncertainty,” she said.

“And in Xbox content and services, we expect revenue growth in the mid-teens with strong engagement on the Xbox platform, in a holiday quarter that will include several AAA title launches.”

In August, Microsoft announced a cloud gaming service for Xbox consoles which would see players stream games on their consoles before having to download and install them onto the console itself.

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Vish Gain is a journalist with Silicon Republic