MSFT Microsoft Corporation

By Jay Greene 

Microsoft Corp. extended its streak of wins in the latest quarter as the software giant moves into an era where its venerable Windows franchise plays a supporting role to its burgeoning cloud-computing operations.

The cloud business, called Azure, jumped 93% in the fiscal third quarter, Microsoft reported Thursday. The business has never grown slower than 90% since the company began reporting the metric in October 2015. The other big piece of the company's cloud operations, the commercial version of its Office 365 online-productivity service, grew 42%.

Microsoft doesn't disclose revenue for either business, but in the preceding second quarter it said Azure jumped 98% and commercial Office 365 grew 41%.

The two businesses combined accounted for $6 billion in revenue, up 58% on what Microsoft financial chief Amy Hood said was "better-than-expected demand."

Ms. Hood pointed to 20% growth in Microsoft's server-products and cloud-services revenue as a reflection of its focus on the so-called hybrid cloud, in which customers mix cloud services with software running on servers in their own data centers.

Microsoft has capitalized on its legacy as a seller of server software to win over its longtime customers who choose to gradually move their operations to the cloud.

That growth has propelled Microsoft into the role of chief cloud rival to Amazon.com Inc., which pioneered the business of renting out computing power and storage a decade ago.

"Two years ago, there was a clear No. 1 with no clear No. 2," said Stifel Nicolaus & Co. analyst Brad Reback. "There is no doubt that Microsoft has put significant distance between themselves and all of the other" Amazon rivals.

The surging cloud business led Microsoft to post a profit increase of 35% to $7.42 billion, or 95 cents a share. Revenue rose 16% to $26.82 billion. Analysts surveyed by S&P Global Market Intelligence expected Microsoft to report per-share earnings of 85 cents on revenue of $25.78 billion.

Microsoft no longer reports adjusted figures, reflecting accounting changes it adopted at the start of the fiscal year. The year-ago figure reflects that change.

Microsoft's stock was down 0.3% in after-hours trading, after finishing the day at $94.27, up 2.1%. Last month, Microsoft shares hit an all-time high of $96.77, a gain of nearly 40% over the past year. The company has jostled with Alphabet Inc. and Amazon for the No. 2 spot behind Apple Inc. as the world's most valuable company as measured by market capitalization.

Microsoft's Azure business is part of its Intelligent Cloud segment. Revenue from that unit rose 17% to $7.9 billion. The Office franchise is part of Microsoft's Productivity and Business Processes segment, where revenue climbed 17% to $9.01 billion.

The company continues to dole out huge sums building massive data centers around the globe to battle Amazon and others. In the quarter, Microsoft had $3.5 billion in capital expenses, with much of that money going toward its data-center expansion. A year ago, Microsoft had $2.1 billion in capital expenditures

Microsoft doesn't break out revenue for its Windows business. Earlier this month, International Data Corp. reported world-wide PC shipments showed no growth in the most recent quarter.

Revenue in Microsoft's More Personal Computing segment, which includes the company's slow-growing Windows franchise as well as the mobile-phone and Xbox gaming businesses, gained 13% to $9.92 billion.

A month ago, Microsoft split the engineering group that develops products under the Windows banner among two separate divisions. It was a recognition that the product that had been synonymous with Microsoft for most of its 43 years will now play a supporting role to the company's cloud-computing efforts.

Even as Microsoft has shifted its focus away from Windows, the operating system showed surprising resiliency. Revenue in the version of Windows that Microsoft generally sells to corporate customers, known as OEM Pro, grew 11%. And revenue from Microsoft's Surface line of computers jumped 32% to $1.10 billion.

LinkedIn, the professional social network Microsoft bought for $27 billion more than a year ago, grew rapidly, with revenue climbing 37% to $1.34 billion.

Write to Jay Greene at Jay.Greene@wsj.com

(END) Dow Jones Newswires

April 26, 2018 18:14 ET (22:14 GMT)

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