MSFT Microsoft Corporation

By Aaron Tilley 

Microsoft Corp. posted higher third-quarter earnings propelled by strength in its cloud-computing business with some of its operations getting an extra boost from the coronavirus pandemic that has forced many day-to-day activities online.

The world's most valuable public company showed it was largely immune to any immediate ill effects from the pandemic even as many U.S. companies have reported falling earnings and pulled their full-year outlook because of economic uncertainty from the health crisis.

The software giant on Wednesday reported earnings per share of $1.40 for the quarter ended March 31, up from $1.14 for the prior-year period. Sales, Microsoft said, rose 15% in the first three months of the year to $35 billion. "Covid-19 had minimal net impact on the total company revenue," Microsoft said. Analysts surveyed by FactSet expected $1.28 of per-share earnings and sales of $33.76 billion for the quarter.

A big boost came from Microsoft's Azure cloud business, which the Redmond, Wash., company said propelled sales up 59% in the quarter. Cloud-computing, already an earnings driver before the pandemic, has become more central for many Microsoft customers as they have moved to support employees working remotely amid a boom in online activity with people sheltering at home.

"We've seen two years' worth of digital transformation in two months," Microsoft Chief Executive Satya Nadella said in a statement.

Microsoft's stock rose more than 4% in after-market trading.

Revenue from the company's commercial cloud operations, which reflects both its Azure cloud business as well as cloud-based applications, grew 39% to $13.3 billion -- a new record.

In February, the looming pandemic caused Microsoft to warn of supply chain disruptions that were expected to cause first-quarter sales in its personal-computing business -- which includes licensing revenue from PC sales, the Xbox gaming platform and Surface laptops -- to fall short of the previous revenue forecast of $10.75 billion to $11.15 billion.

The PC group, Microsoft said Wednesday, generated sales of $11 billion as demand to support remote work and teaching offset some of the supply chain issues. The gaming business benefited from people staying at home, with Xbox sales increasing 2% in the quarter, an improvement from the 11% drop in the previous three-month period. Surface laptop sales rose 1% as demand from people rushing to buy devices to work remotely outpaced supply chain issues.

Microsoft also said that the supply chain constraints it had seen improved later in the quarter. "Factories came back to more normal operations at a faster pace than we expected," said Jonathan Neilson, a finance director with Microsoft's investor relations team.

Microsoft's other two main business areas saw sales grow from the year-ago period. Its intelligent cloud segment, which includes its Azure product line, booked revenue of $12.3 billion, up 21%. The company's productivity and business process division, which includes LinkedIn, sales-management software Dynamics and commercial subscriptions to the Office 360 product suite, had $11.7 billion in sales, up 15% from the same quarter a year ago.

Although demand for the cloud has been growing rapidly during the pandemic, Microsoft has faced some capacity issues dealing with the increased usage. Microsoft also said it had to slow some of its cloud infrastructure spending because of the supplier constraints in China.

Another challenge for Microsoft is maintaining its cloud-computing momentum. Although remote working and people stuck at home are increasing the appetite for tools that run on the cloud, a broader economic downturn could dent spending plans for some companies forced to cut costs. Microsoft said that in the final weeks of the quarter there was a slowdown in finalizing some licenses, particularly involving smaller and medium-sized businesses, many of which have been hit hard by the economic effects of the pandemic.

Microsoft's business social-media network LinkedIn also felt the effect from the spending slowdown toward the end of the quarter with reduced advertising spending, the company said, though revenue over the full quarter rose 21% from a year earlier.

Write to Aaron Tilley at aaron.tilley@wsj.com

(END) Dow Jones Newswires

April 29, 2020 18:14 ET (22:14 GMT)

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