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Microsoft sees silver lining in cloud

by on27 October 2021

Clouds are booming

Software King of the World Microsoft forecast a strong end to the calendar year thanks to its booming cloud business but said supply chain woes will continue to dog key units such as those producing its Surface laptops and Xbox gaming consoles.

The company beat what the cocaine nose jobs of Wall Street expected for its first quarter ended 30 September thanks mostly to cloudy services making shedloads of cash.

First-quarter revenue growth for Azure, the company's flagship cloud-computing business, came in at 48 per cent in constant currency to beat analysts' estimates of 47.5 percent.

Microsoft’s executive vice president and chief financial officer Amy Hood said that the company also expected "broad based growth" for the unit in the fiscal second quarter.

Azure's growth rate is the best direct measure of competition with rivals such as AWS and Google Cloud as Microsoft does not break out revenue from the cloud-computing unit.

Microsoft appeared to hold off Google Cloud's rising challenge. Google Cloud said on Tuesday its revenue surged by 45 percent to $4.99 billion but failed to live up to estimates of $5.2 billion. read more

Revenue at the firm's other business units that house Windows software, the Teams messaging service and LinkedIn professional social networking platform also beat analyst expectations.

The supply chain issues affecting much of the global tech industry had mixed consequences for Microsoft.

Hood said Microsoft has continued to increase its cloud computing margins despite higher data centre construction costs because it keeps adding more profitable services to those data centres.

Hood said that the company could ship more Xbox S and X gaming consoles than it expected in the first quarter - sales of gaming consoles and accessories were up 166 percent  as the company continued to see strong demand for new models after the pandemic forced millions to seek entertainment at home.

But Microsoft and its rivals have been unable to keep up with demand because of the global chip crunch and this Christmas devices are going to be as rare as hen’s teeth.

She also said that sales of the company's Surface computers, which declined 17 percent  in the fiscal first quarter, were likely to keep sinking in the second quarter, with supply chain shortages hitting premium items in the lineup.

Microsoft's revenue from selling Windows to PC makers grew 10 per cent  year over year, beating the overall PC market, which only grew 3.9 percent  over the same period because of supply constraints, according to data from IDC.

Hood said that the company was able to outperform in the PC market because of its strength in selling licenses for Windows destined for corporate customers, where it gets more revenue per license and has better market share.

Overall, revenue rose 22 per cent to $45.32 billion in the first quarter ended Sept. 30, beating expectations of about $43.97 billion.

Net income rose to $20.51 billion, or $2.71 per share. The company said its results included a $3.3 billion net income tax benefit.

On an adjusted basis it earned $2.27 per share, trumping analyst expectations of $2.07 per share.

For the fiscal second quarter, Microsoft predicted a midpoint of $18.23 billion in revenue for its intelligent cloud business for the fiscal second quarter, above estimates of $17.84 billion, according to Refinitiv data.

First-quarter revenue from "Intelligent Cloud" surged 31 percent  to $17 billion. Analysts had expected a figure of $16.58 billion.

Microsoft's forecast for its software app and Windows centric segments with midpoints of $15.83 billion and $16.55 billion, respectively, were also above Refinitiv estimates of $15.40 billion and $15.51 billion.

Last modified on 27 October 2021
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