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Microsoft drifts towards the cloud

Microsoft sign

© Flickr/CC-licence/Robert Scoble

Microsoft continues its transformation process under CEO Satya Nadella, posting positive second quarter results that show the growth in its cloud and devices businesses. Revenues of $26.5bn were up 8 per cent year-on-year, in line with most analyst forecasts, although Q2 operating income fell two per cent to $7.8bn.

However, it’s Microsoft’s traditional products that continue to dominate the numbers. Commercial Licensing accounted for $10.7bn of the total revenues (40 per cent), although volumes did decline slightly year-on-year by two per cent. Devices and Consumer Licensing was the next highest segment at $4.2bn (16 per cent), although this too fell from last year, down 25 per cent.

In fact when you look at Microsoft’s quarterly revenue growth year-on-year, the $1.95bn increase is more than offset by the $2.28bn revenue from its new Phone Hardware segment – the business Microsoft bought from Nokia last year. Without that, revenues would have decreased.

Of course, it all depends on how you slice and dice the figures. If you combine Microsoft’s seven accounting segments into just two: Devices and Consumer, and Commercial, then you get positive revenue grow from both – 8 per cent and 5 per cent respectively.

The Lumia phone business was obviously a large revenue contributor for Microsoft. It revealed that it sold 10.5 Lumia devices in the quarter, which by most analysts’ reckoning is about two per cent of the total smartphone market. Not a lot, but it’s solid; a secure and firm platform on which Microsoft can build (and it is placing a lot of expectation on this year’s Windows 10 cross platform operating system).

It’s Surface tablets and laptop hyrids are also performing reasonably well, despite much negative criticism when they were first introduced. The company said Surface revenue reached $1.1bn, up 24 per cent year-on-year, thanks mostly to the Surface Pro 3. Search advertising revenue grew 23 per cent, and Bing now has 19.7 per cent US market share.

Switching the focus of its popular Office software from physical copies and one-off payments to the cloud-based Office 365 suite also appears to be paying off, as it now has 9.2m cloud-based personal customers, up 30 per cent from the first quarter.

Commercial cloud revenue more than doubled with revenue up 114 per cent year-on-year to what the company says is an annual run rate of $5.5bn. Good growth, but that’s still just 5 per cent or so of Microsoft’s expected annual revenue total for this year.

“Microsoft is continuing to transform, executing against our strategic priorities and extending our cloud leadership,” said Satya Nadella, Microsoft CEO. “We are taking bold steps forward across our business, and specifically with Windows 10, to deliver new experiences, new categories, and new opportunities to our customers.”

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