Microsoft Q1 Benefits From Cloud Strength

Microsoft has dazzled Wall Street after its first quarter financial results surpassed analyst estimates in all its operating segments.

Microsoft posted strong growth in both profits and revenues for its first quarter, aided by growth in its cloud computing and PC businesses, and Microsoft’s strong move into artificial-intelligence offerings.

Microsoft is a heavy investor in AI. Redmond is the main financial backer of OpenAI and it also invested in competitor Inflection AI, founded by DeepMind co-founder Mustafa Suleyman and LinkedIn co-founder Reid Hoffman.

First quarter results

But not everything is going Microsoft’s way.

Earlier this month it emerged that Microsoft could be facing a massive financial hit, after the US Internal Revenue Service (IRS) claimed Redmond owed $28.9bn in back taxes for the tax years 2004 to 2013.

But Microsoft’s most recent financial results show the tech giant for the first quarter ending 30 September, had posted a net profit up a staggering 27 percent at $22.3bn, compared to a profit of $17.6bn in the same year-ago quarter.

Quarterly revenue also rose 13 percent to $56.5bn from $50.1bn a year earlier.

“With copilots, we are making the age of AI real for people and businesses everywhere,” said Satya Nadella, chairman and CEO of Microsoft.

“We are rapidly infusing AI across every layer of the tech stack and for every role and business process to drive productivity gains for our customers.”

Divisional performance

Digging into the results, Microsoft seems to have performed well in all its operating segments.

Revenue in the ‘Productivity and Business Processes division’, the segment with the LinkedIn social network and its Office productivity software, rose 13 percent to $18.6 billion, as Office Commercial products and cloud services revenue increased 15 percent.

Microsoft Azure continues to be a strong performer for the tech giant, as revenue in the ‘Intelligent Cloud division increased 19 percent to $24.3 billion. This was achieved thanks to a 21 percent rise in server products and cloud services revenue and a 29 percent increase in Azure and other cloud services revenues.

And it seems that Microsoft has shrugged off the previous slump in the PC sector, after revenue in the ‘More Personal Computing division’ rose 3 percent to $13.7 billion.

This was achieved thanks a 5 percent rise in Windows revenue, aided by 4 percent rise in Windows OEM revenue and 8 percent rise in Windows Commercial products and cloud services revenue.

However devices revenue decreased 22 percent, indicating the struggle that its Surface devices face in the market.

In September, Microsoft’s long serving product chief Panos Panay resigned suddenly after 19 years at the company.

Panay, as expected, was hired by Amazon as its new head of its Devices & Services division.

Meanwhile Xbox content and services revenue increased 13 percent; and search and news advertising revenue excluding traffic acquisition costs increased 10 percent.

Microsoft returned $9.1 billion to shareholders in the form of share repurchases and dividends in the first quarter of fiscal year 2024.