Microsoft profits leapfrog expectations thanks to strong cloud demand

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Microsoft

Microsoft reported strong earnings for the fourth quarter thanks to strong cloud demand – a result that will strengthen investor trust in the software giant and its strategy of going cloud first.

The profits can be seen as direct evidence of the fruitful strategy implemented by Chief Executive Satya Nadella who etched a cloud path for Microsoft by shifting focus away from a dying personal computer software business to a provider of cloud computing and subscription-based software.

Most notably, revenue from the cloud unit, which includes the flagship Azure platform and server products, rose about 11 percent to $7.43 billion in the fiscal fourth quarter ended June 30.

Analysts expectations stood at $7.32 billion, but Microsoft managed to beat those expectations on the back of demand for its cloud services.¬†Highlighting Azure’s growth were notable increases to Microsoft’s long-term unearned revenue, which rose by more than 61 percent year-over-year. The metric is used to indicate long-term commitments for services and products, said Kim Forrest, vice president and senior equity analyst at Fort Pitt Capital Group, a portfolio management firm.

In a bid to continue this momentum, Microsoft last week launched Azure Stack, a new service that allows customers to run a local version of the company`s cloud technology.

 

The commercial offering of Office 365 was up 43 percent while Dynamics 365, Microsoft`s customer relationship management and enterprise resource planning service, saw a year-over-year increase of 74 percent.

Revenue dropped 2 percent in the personal computer division, which includes Windows 10 and Microsoft`s line of Surface hardware.

The company said it recorded $306 million in restructuring charges following a reorganization of its sales and marketing teams that was announced earlier this month. The restructuring resulted in layoffs for thousands of Microsoft employees.

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