Microsoft posts record results despite gaming decline

Andrew Cummings
July 21, 2019

Revenue in the company's productivity and business unit, which includes the Office suite of programs like Word, Excel and PowerPoint, rose 14 per cent in the quarter to US$11 billion, exceeding analysts' average estimate of US$10.7 billion. Net income in the quarter was US$13.2 billion, or US$1.71 a share.

CEO Satya Nadella even said in a call with investors that "our commercial cloud business is the largest in the world", although that's only true if you use Microsoft's unique definition.

Still, investors didn't seem unduly anxious, as Microsoft's shares were up 2.6% in after-hours trading, sending the company's market value past $1 trillion for the first time since April.

Microsoft on Thursday posted quarterly earnings that trounced expectations, citing growth in partnerships with companies on technology and cloud computing services. Analysts said this low growth rate indicates Microsoft still has room to catch up to Amazon Web Services while fending off Google Cloud Platform.

Sales from Microsoft's commercial cloud division, which includes Azure, Office 365 and Division 365, increased 39% from the prior year to $11 billion. Analysts additionally estimate sales of $32.8 billion for the quarter ended June, more than around $30 billion recorded a year ago. The company's acquisitions have been a rough patch but it saw LinkedIn posting a 25 percent increase in revenue at $371 million.

Revenue in the Intelligent Cloud unit was $11.4 billion and increased 19 percent, compared with revenue in "More Personal Computing" division was $11.3 billion and increased 4 percent. That 64% Azure growth is significant, for example, but not near the 73% and 75% of this year's previous quarters.

Mike Spencer, head of investor relations at Microsoft, said Windows results were fueled by customers upgrading from Windows 7, which will be retired next year, and the result of some PC customers stockpiling inventory in anticipation of possible tariffs.

In Microsoft's fiscal year, revenue and profit both grew by double digits and reached record levels. That's in addition to cloud infrastructure such as data centers and servers, where Amazon is the market leader.

"Every day we work alongside our customers to help them build their own digital capability - innovating with them, creating new businesses with them, and earning their trust". For example, revenue in Productivity and Business Processes increased 14% to $11 billion.

The big standout, though, is the performance of Microsoft's gaming and Xbox software and services divisions: Gaming revenue dropped 10 percent year-on-year, while revenue from other Xbox services dropped three percent - the only recorded losses in Microsoft's quarterly report.

Yet Microsoft's ambitions in this space aren't limited to a mere numbers-game.

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