Microsoft delivered excellent figures in its latest financial results, for the period Jan-March 2018. Total revenue of $26,819 million was up 16% year on year, within which Azure revenue grew 93%.
The overall story is that cloud services and subscription income is working well for the company. Azure is not the whole of Microsoft’s cloud; in fact I would argue that Office 365 (built around hosted Exchange) is equally important, since it drives uptake for other products and services including desktop Office and Dynamics. Office 365 commercial revenue grew 42% and Office consumer grew 12%.
Perhaps more surprising is that this was also a good quarter for Windows and Xbox. Windows OEM revenue up 4%, Surface up 32%, Xbox up 24%. Why is Windows growing? One reason is that businesses really are upgrading to Windows 10, where perhaps they sat out Windows 8 as best they could. This is necessary for security reasons if nothing else. The uptake for Windows 10 has had spin-off benefits for things like Surface sales, as CFO Amy Hood explained in the financial webcast.
Even LinkedIn is doing well, with revenue growth of 37%, driven by job advertising and sponsored content.
In the webcast, CEO Satya Nadella talked up “the intelligent cloud and the intelligent edge” and the role of AI in securing the cloud.
GDPR is also seen as an opportunity. It is less costly to host applications in our GDPR-complaint cloud than to achieve this on-premises, said Microsoft.
So everything is fine for Microsoft? Perhaps, perhaps not. The company has transitioned not only to cloud, but to enterprise, and is becoming less and less visible to consumers. The home PC is not the ubiquitous thing it once was, and in mobile there is no longer any Windows, aside from the occasional Windows 10 tablet. Xbox and gaming PCs are the only bright spots in consumer.
This means the company has changed its character. It has also missed out on things like mobile payments, home assistants and home automation. You can see how Google, Amazon and to some extent Apple are jostling for position as a kind of portal to everything for the consumer, with great strategic advantage as powerful intermediaries to consumer purchases. Microsoft is absent.
Every business person is also a consumer and retreating from this market could prove costly long-term.
For now though, the company is delivering nicely on Nadella’s cloud strategy.
Here is the breakdown by segment, such as it is:
Quarter ending March 31st 2018 vs quarter ending March 31st 2017, $millions
|Productivity and Business Processes||9006||+1299||3115||+575|
|More Personal Computing||9917||+1142||2523||+488|
The segments break down as:
Productivity and Business Processes: Office, Office 365, Dynamics 365 and on-premises Dynamics, LinkedIn
Intelligent Cloud: Server products, Azure cloud services
More Personal Computing: Consumer including Windows, Xbox; Bing search; Surface hardware