Demand for Microsoft Cloud Services Soars

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On Thursday, Microsoft Corp published a 3.6% increase in fiscal second quarter profit,  supported by progress in its fast growing cloud computing business, however, it saw a small decline in margins in the unit that includes its flagship cloud platform Azure.

Shares of the world’s largest software company increased approximately 1.1%  in after-hours trading.

Since taking responsibility in 2014, Chief Executive Satya Nadella has directed the company in the direction of cloud services and mobile applications and far from its slowing traditional software business.

Gross margins for Microsoft’s so called “commercial cloud” business, that includes Azure and the types of its online Office 365 products sold to businesses, were  48%, stated by the head of Microsoft’s investor relations, Chris Suh.

Which was  down from last quarter’s 49%, however,  up from 46% a year before. The figure is observed carefully by investors as an indication of the actual gain made of Microsoft’s cloud products, which the company does not announce.

The Azure platform contests with cloud infrastructure offerings from market leader Amazon.com Inc, Alphabet Inc’s Google, IBM and Oracle Corp.

“We’re not at Amazon’s margin today,” said Suh. “Their infrastructure business is much larger. They have the benefit of scale. We track more like what Amazon was when they were closer to our size.”

Revenue from Microsoft’s ‘Intelligent Cloud’ business, which includes Azure, together with other data center software, increase 8.0% to $6.9 billion in the quarter. That beat analysts’ average estimate of $6.73 billion, according to research firm FactSet Street Account.

Microsoft’s estimates for next quarter were $6.45 billion to $6.65 billion, only slightly higher than FactSet’s $6.61 billion assessment.

In constant currency, Azure’s revenue increased 94%  year over year, a good clip, but still the lowest progress  rate since Microsoft started revealing the figure in 2015, and down from 121% the previous quarter.

Sales of Office 365 to businesses increased 49%, down from 54%in the prior quarter. As with Azure, Microsoft does not provide a complete dollar figure for Office 365 sales.

Sales in Microsoft’s personal computing business, which includes its Windows software  declined 5% to $11.8 billion, to some extent beating the rate at which personal computer sales dropped in the quarter.

Together with his push into cloud and mobile, Nadella also arranged Microsoft’s biggest acquisition, the $26.2 billion contract for LinkedIn, which closed the previous  month.

Microsoft stated, LinkedIn contributed $228 million of revenue in the quarter, but reported a net loss of $100 million, or 1 cent per share.

Microsoft produced 84 cents per share in the quarter, without LinkedIn and some other items. That beat Wall Street’s average estimate of 79 cents.  The company’s net income increased to $5.20 billion, or 66 cents per share, in the quarter ended Dec. 31, from $5.02 billion, or 62 cents per share, a year before, according to the reports.

Its changed revenue, excluding LinkedIn, was $25.838 billion, ahead of analysts’ average estimate of $25.298 billion.

In the past 12 months,  Microsoft’s shares had increased 23.2%, compared with the 20.7% surge in the broader S&P 500 index.

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