Microsoft Posts Record Sales as Cloud Business Continues to Grow -- 2nd Update
January 29 2020 - 7:05PM
Dow Jones News
By Aaron Tilley
Microsoft Corp. posted higher quarterly earnings on record
sales, driven by continued strong growth in its cloud-computing
business.
The software giant Wednesday reported fiscal second-quarter
earnings per share of $1.51, up from $1.08 for the same period last
year. Analysts surveyed by FactSet had expected earnings per share
of $1.32. Revenue rose 14% to $36.91 billion, beating analysts'
expectations of $35.67 billion.
Microsoft is projecting third-quarter revenue of $34.1 billion
to $34.9 billion.
Microsoft has enjoyed a period of earnings growth under Chief
Executive Satya Nadella, who has bolstered the company's
cloud-computing business that enables customers to rent rather than
buy data storage and processing. The company has become the No. 2
provider of cloud-computing services behind Amazon.com Inc. "We are
innovating across every layer of our differentiated technology
stack and leading in key secular areas that are critical to our
customers' success," said Mr. Nadella.
Microsoft's intelligent cloud unit, which includes its Azure
cloud services, had sales of $11.87 billion, up 27% from the
year-ago period and exceeding analysts' expectations of $11.4
billion, according to FactSet.
In October, Microsoft beat out Amazon to provide cloud-services
to the Pentagon. The deal is valued at up to $10 billion over the
next decade, the Pentagon has said. Amazon is protesting the
decision to award the contract to Microsoft.
The Redmond, Wash.-based company has spent heavily to bolster
its cloud business and narrow the gap with Amazon, which still has
a dominant market share. Microsoft has also benefited from
increasing cloud profit margins, bolstering its financial
results.
Azure sales increased 62% in the second quarter from a year ago,
a faster pace than the 59% year-over-year rise in the first
quarter.
Azure growth is "confirmation that they're continuing to take
market share while offering more efficiency as they take market
share," said Alex Zukin, an analyst at RBC Capital Markets.
"They're growing at twice the rate that AWS [Amazon Web Services]
is growing."
Microsoft's shares, which have risen 63% over the past year,
rose around 5% in after-hours trading.
The division that includes the legacy Windows personal-computer
operating system business, the Xbox gaming business and Surface
hardware also surprised Wall Street as the company had forecast for
sales to be down as much as 3% from the second quarter last year.
Instead, sales increased 1.7% to $13.21 billion, helped by stronger
Windows operating system installs.
"We don't think we'll see sustainable growth with Windows, but
we also don't think a cliff is coming," Jonathan Neilson, a finance
director with investor relations at Microsoft. "The underlying
demand is there."
Microsoft this month ended support of Windows 7 software. That
deadline helped drive PC sales in recent months as customers such
as large enterprises bought devices featuring the newer Windows 10
operating system.
Microsoft's productivity and business-process division, which
includes LinkedIn and commercial subscriptions to the Office 365
product suite, had $11.83 billion in sales, up 17% from the same
quarter a year ago. Analysts were expecting sales of $11.43 billion
for the quarter.
Write to Aaron Tilley at aaron.tilley@wsj.com
(END) Dow Jones Newswires
January 29, 2020 18:50 ET (23:50 GMT)
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