Microsoft Sees Cloud Payoff, But Remains Cautious On Outlook

Matthew Broersma,
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Azure cloud service revenues grow 59 percent as chief Nadella says company has ‘seen two years’ worth of digital transformation in two months’

Microsoft reported higher revenues across the board for its financial quarter through March 2020, in what it said was payoff for its strategic moves over the past few years toward  subscription-based revenues and cloud services.

But the company exercised caution for its projections through June, with expectations weaker than analysts’ expectations as it cautioned that the effects of the Covid-19 pandemic may make themselves increasingly felt going forward.

Microsoft showed growth across its productivity, cloud and personal computing businesses, which respectively grew 16 percent, 27 percent and 3 percent year-on-year.

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The cloud business unit brought in $12.3bn (£9.8bn) for the quarter, compared to $11bn for personal computing, which includes Windows, and $11.7 for productivity, which includes Office and LinkedIn.

Revenues from the productivity business unit declined from $11.8 in the preceding quarter.

Overall revenues for the quarter were $35bn, down $2bn from the previous quarter, but up 15 percent year-on-year.

Azure grew 59 percent year-on-year and remains the biggest contributor to the company’s growth, although its rate of expansion has been slowing over the past year.

Microsoft continues to face strong cloud competition from market leader Amazon Web Services, which last year challenged the award of a major US military contract to Azure.  The dispute was recently resolved in Microsoft’s favour.

Cautious outlook

But Microsoft cautioned that “the effects of Covid-19 may not be fully reflected in the financial results until future periods”, giving guidance of $35.85bn to $36.80bn in revenues for the quarter to June.

That is below analysts’ expectations and would be one of Microsoft’s slowest-growth quarters in recent years.

Chief executive Satya Nadella said Covid-19 lockdowns had contributed to the company’s strong quarter, but also said Microsoft has a “durable business model” that prepares it for a changeable future.

“We’ve seen two years’ worth of digital transformation in two months,” Nadella said.

He added that customers are now operating in  “a world of remote everything”.