Tech Times | Microsoft's profit jumps by 28 per cent with shift to Web-based software

SEATTLE (TNS):

Microsoft reported a jump in quarterly earnings, reflecting continued progress in the company's shift toward Web-based business software.

Revenue during the three months that ended March 31 was up eight per cent from a year earlier, and net income surged 28 per cent, as the company boosted sales of its profitable package of on-demand software and processing power.

Microsoft, headquartered outside Seattle, has retooled its operations in recent years in an effort to move away from the stalled business of providing packaged software installed on new personal computers towards Web-based business software tools aimed at technology buyers like corporate information technology departments and software developers.

Two deals Microsoft announced this week are symbolic of that shift. UBS, the Swiss banking company, said it had shifted its risk-management tools to Microsoft's Azure cloud-computing platform. Shipping giant Maersk said it was using Microsoft's cloud-computing tools to store and analyse logistics data.

Sales in what Microsoft calls its "intelligent cloud" segment, which includes Microsoft's server software as well as Azure, accounted for 39 per cent of Microsoft's operating income in the most recent quarter. Revenue in the segment was up 11 per cent from a year earlier.

A decade ago, when sales of Windows and Office accounted for Microsoft's entire operating income, those businesses either didn't exist or had a fraction of their current profitability.

 

CUSTOMER TRUST

 

"Our results this quarter reflect the trust customers are placing in the Microsoft cloud," Chief Executive Satya Nadella said in a statement.

Microsoft's 'commercial cloud', a cluster of businesses that includes sales of the Web-based Office 365 and Azure cloud-computing platform, were on track to bring in $15.2 billion over the course of a full year.

Overall, Microsoft's revenue totalled $22.09 billion during the quarter. Net income rose to $4.8 billion. On a per share basis, net income was 61 cents, up from 47 cents a year earlier.

Those figures strip out sales of the Windows 10 operating system that, by official accounting metrics, is deferred to future quarters. That sum was about $1.6 billion in the quarter.

Adjusting to include those sales a closely watched metric for Wall Street Microsoft posted profit of 73 cents a share, up from 63 cents a year earlier. That beat financial analysts' expectations for a profit of 70 cents.

Investor expectations for Microsoft have been sky-high, with the company in recent quarters faring better than other large, business-oriented technology companies.

Microsoft's stock, at a record high of $68.27 at the close of regular trading last Thursday, eased in after-hours trading after the earnings report.

 

BUSINESS MILESTONE

 

The quarter also included a milestone in Microsoft's shift away from its beleaguered smartphone business towards its growing core of business software.

Microsoft's phone hardware unit, acquired from Nokia for $7.9 billion in 2014, reported no meaningful revenue during the period. That's the end of the line for a Windows Phone unit on which Microsoft had spent years and billions of dollars in an effort to rival Google and Apple as smartphone software makers.

Meanwhile, the period included the first full quarter of results from LinkedIn as a Microsoft subsidiary. Microsoft spent $27 billion to buy the professional social networking firm in December.

LinkedIn posted a $386-million operating loss on revenue of $975 million during the quarter.

Executives have said they hope to grow LinkedIn's own business, while using its trove of professional data to make existing Microsoft software, like Outlook and Office, smarter. Microsoft recently announced the first new integrations between Microsoft and LinkedIn products.