How Microsoft’s blue-skies approach netted it $26bn in Q3 sales

27 Apr 2018

View looking north from the new Microsoft campus in Dublin. Image: Naoise Culhane Photography

Microsoft’s own digital transformation is making it nimble in areas such as Azure as well as the Surface hardware line.

Software giant Microsoft is back in the business of brave as advances in cloud and Surface computers resulted in sales rising 16pc year over year to $26.8bn for the third quarter.

This yielded the company an impressive profit of $7.4bn, up a whopping 35pc on a year ago.

‘We delivered double-digit revenue and operating income growth driven by 58pc growth in our commercial cloud revenue’

A steely, disciplined approach to innovation and sales was the key factor, said CEO Satya Nadella.

“Our results this quarter reflect the trust people and organisations are placing in the Microsoft Cloud,” said Nadella.

“We are innovating across key growth categories of infrastructure, AI, productivity and business applications to deliver differentiated value to customers.”

Ironically, for a company that sells transformation to organisations, the software giant has been transforming itself from the inside out under Nadella’s leadership for the past four years.

This transformation has seen it move from being a bloated seller of software to a sleek provider of solutions.

And the key factors were cloud and hardware.

“With consistent investment and strong sales execution, this quarter we achieved better-than-expected performance across all segments,” said Amy Hood, executive vice-president and chief financial officer at Microsoft.

“We delivered double-digit revenue and operating income growth driven by 58pc growth in our commercial cloud revenue.”

So, where did Microsoft make gains?

Productivity and processes are the mantra of the 21st-century enterprise

Sales from platforms such as Office 365 helped revenue in Microsoft’s productivity and business processes division surge 17pc to $9bn.

Office commercial products and cloud services revenues were up 14pc, driven in particular by Office 365 commercial revenues, which were up 42pc.

Overall, Office 365 consumer subscribers increased to 30.6m customers.

LinkedIn is a whole new strategy yet to be truly unfurled

Two years ago, Microsoft stunned the world when it acquired LinkedIn for the eye-watering sum of $26bn.

In doing so, it pretty much acquired the world’s fanciest, living and breathing rolodex. Many argued at the time that the price tag was too high.

But, when the worlds of Outlook merge with LinkedIn’s sales generation tools, you may have the V8 of sales engines under the hood that could rival players such as Salesforce.

LinkedIn revenues in Q3 increased 37pc, driven by engagement with LinkedIn sessions, up 30pc.

Microsoft Dynamics products and services revenues increased 17pc, driven by the Dynamics 365 revenue growth of 65pc.

Azure is a silver bullet in the blue sky

Like Amazon, which has also flourished through its early embrace of cloud, Microsoft is reaping the whirlwind from the cloud revolution.

Microsoft revealed that revenues in intelligent cloud were $7.9bn, up 17pc, driven by Azure revenue growth of 93pc.

Enterprise services revenue increased by 8pc.

Computing? This time, it is really personal

If you think the computing war that began between Microsoft and Apple in the 1980s is over, think again.

The golden age of operating system rivalry that began between the Windows PC and the Apple Mac sometimes seems like a piece of computing history lore, but the war isn’t over – not by any stretch of the imagination.

Apple is certainly the victor when it comes to the smartphone – now the principle method of computing in the world – and its iPhone is accordingly hugely profitable. Microsoft’s top-heavy and ham-fisted efforts at smartphones ranged from the clumsy (try to forget Windows CE) to the downright disastrous (oh dear God, remember Nokia?).

However, somewhere deep inside, Microsoft dug deep and stayed true to its heritage in personal computing. The Windows 10 operating system and device lines such as the Surface show a refined and instinctive grasp of what truly productive users want from their machines.

Revenue in Microsoft’s ‘more personal computing’ group was $9.9bn, up 13pc on a year ago.

Windows OEM revenue – that is, sales of the OS to hardware manufacturers – increased 4pc, driven by OEM Pro revenue growth of 11pc.

Windows commercial products and cloud services revenues were up 21pc. Revenues from gaming, including Xbox software and services, grew 24pc, mainly from third-party title strength.

But, most tellingly, revenues from Surface devices increased 32pc and accounted for $1.09bn in revenues during the quarter. The sleek machines are being touted as rivals to the Apple MacBook Air and MacBook Pro and, certainly, in terms of price, performance and battery life, they are worthy contenders.

Hood said that sales revenue growth was in the high teens and that performance was driven by demand for Microsoft’s latest Surface Book.

She added that the company will transition to new Surface hardware in the near future.

Overall, Microsoft’s internal transformation is making it braver, more calculating and not afraid to make bigger bets on cloud and hardware. That’s how you do it.

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