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Microsoft cloud powers earnings boost

CEO Satya Nadella claims Azure compute services are the starting point for digitisation, as businesses add higher value services like AI

Microsoft has reported revenue of $32.5bn for Q2 2019, an increase of 12% compared with last year, thanks to the success of selling Azure.

The company posted commercial cloud revenue of $9bn, which it says represents a year-over-year increase of 62%. It attributed its cloud success to “significant improvement in Azure’s gross margin.”

Satya Nadella, CEO of Microsoft, said: “We are delivering differentiated value across the cloud and edge as we work to earn customer trust every day.”

Nadella claimed Microsoft was experiencing growth in the cloud business because every company is turning into a digital company, consuming compute in the cloud and then processing data in the cloud, with AI-powered services.

The company reported revenue of  $10.1bn in its productivity and business processes family of products, an increase of 13% driven by Office 365 Commercial, LinkedIn and Dynamics 365. Office Commercial revenue grew 11%, and Microsoft attributed the growth in Office 365 to an increase in seat growth of 27% – and continued customer migration to higher value E3 and E5 offerings.

The success of Azure, and how this is integral to Microsoft’s growth pans, raised concerns over the viability of Windows as a standalone product.

Looking at its More Personal division, the company’s CFO Amy Hood said there was a decline in the Windows OEM operating system, which ships to PC manufacturers.

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In a transcript of the earnings call posted on the Seeking Alpha financial blogging site, she stated: “In Windows, the overall PC market was smaller than we expected, primarily due to the timing of chip supply to our OEM partners, which constrained an otherwise healthy PC ecosystem and negatively impacted both OEM Pro and non-Pro revenue growth. Windows OEM Pro revenue declined 2%, roughly in line with the commercial PC market.”

When asked about whether this slowdown will impact Microsoft’s investment in Windows going forward, Hood said: “We know the signals we get from our commercial customers is that there’s a healthy demand for the value that exists in Windows 10.

“We’re seeing it in terms of deployments on new and existing devices, and the security and manageability value proposition that comes with a modern device as well as the experiences employers want their employees to have and be able to take advantage of,” she said.

Combined with the end of support for Windows 7, she said: “There is still an opportunity for us to remain focused on and execute on through this calendar year, and I still feel quite good about that, including the signals we’re getting in the market.”

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