Microsoft finds profits in the cloud

  • Associated Press
  • Thursday, October 23, 2014 2:22pm
  • Business

SAN FRANCISCO — CEO Satya Nadella is making progress in his push to embrace cloud computing. Microsoft’s revenue from cloud services, including software delivered over the Internet, more than doubled in the last quarter at a time when some of its better-known segments are slowing. That helped lift quarterly profit and revenue well above expectations.

Shares jumped over 3 percent in after-hours trading. The stock, which closed at $45.02 before the results were released, is up 33 percent in the last 12 months.

The tech giant still makes most of its money from selling traditional software for businesses and home computers. But Nadella has acknowledged that traditional software has an uncertain future, as people buy fewer personal computers and businesses switch to software that can be accessed online, instead of installing programs on individual machines.

Microsoft reported net income of $4.54 billion, or 54 cents per share, for its fiscal first quarter that ended in September — beating analysts’ consensus estimate of 49 cents per share, according to FactSet. That’s down from $5.24 billion, or 62 cents per share, a year ago, due to over $1 billion in costs to restructure and integrate its recent purchase of Nokia’s smartphone business. The company also spent more on sales, marketing and research and development during the three-month period.

Revenue grew to $23.20 billion from $18.53 billion, also topping analysts’ $22.01 billion forecast. This quarter’s sales include revenue from the phone business, which Microsoft didn’t own a year ago.

Overall, the numbers showed how the Redmond, Washington company’s business is shifting: Microsoft reported an 8 percent drop in licensing revenue for consumer software, including its Windows operating system for personal computers. The mobile phone business reported a slim profit. Sales of Xbox gaming consoles surged. But growth has slowed in the division that sells traditional business software, which currently represents almost half the company’s business.

Nadella, who was named CEO earlier this year, has said mobile and cloud services are critical to Microsoft’s future. The company spent $4.5 billion last year to expand its own computer centers that support cloud services. That’s a little more than the $4.4 billion that Microsoft expects to make in revenue from commercial cloud services this year. Cloud services currently provide only about 5 percent of Microsoft’s annual sales. But analysts say it’s an important, growing market.

“That’s the big focus for them,” said Forrester Research analyst John Rymer. “They’ve concluded, and I think they’re right, that that is the future of the IT industry.”

Microsoft isn’t the only big tech company that sells cloud-based programs. It vies with Amazon and Google Inc., among others, in the market for selling “public cloud” services to business customers. That means companies can use software stored on Microsoft’s servers, or they can use Microsoft’s computer centers to store their data or build and operate their own Internet services. Amazon.com Inc. has been the leader in that business, but Microsoft says it’s signing up thousands of new customers every week.

As part of its cloud strategy, Microsoft announced several new commercial services earlier this week. It also touted a new partnership with Dell to sell hardware and software that’s packaged together for companies that want to build their own “private” clouds. Competitors in that business include traditional computer-makers like IBM Corp. and Hewlett-Packard Co.

Microsoft, however, is also touting “hybrid” cloud services, in which it helps businesses carry out some functions in their own computer centers and lets them use Microsoft’s cloud when they need more capacity. That’s a strong selling point for Microsoft because most of its competitors focus on one segment or the other — not both, according to Gartner tech analyst Merv Adrian.

Even so, Adrian said Microsoft’s cloud business is a long-term investment. Commercial customers provide more than half of Microsoft’s revenue. And while many companies are finding cloud services to be convenient and economical, most still carry out the bulk of their operations on their own computers.

“It takes time to make the transition,” Adrian said.

Talk to us

> Give us your news tips.

> Send us a letter to the editor.

> More Herald contact information.

More in Business

Black Press Media operates Sound Publishing, the largest community news organization in Washington State with dailies and community news outlets in Alaska.
Black Press Media concludes transition of ownership

Black Press Media, which operates Sound Publishing, completed its sale Monday (March 25), following the formerly announced corporate restructuring.

Maygen Hetherington, executive director of the Historic Downtown Snohomish Association, laughs during an interview in her office on Thursday, Feb. 15, 2024, in Snohomish, Washington. (Ryan Berry / The Herald)
Maygen Hetherington: tireless advocate for the city of Snohomish

Historic Downtown Snohomish Association receives the Opportunity Lives Here award from Economic Alliance.

FILE - Washington Secretary of State Steve Hobbs poses in front of photos of the 15 people who previously held the office on Nov. 22, 2021, after he was sworn in at the Capitol in Olympia, Wash. Hobbs faces several challengers as he runs for election to the office he was appointed to last fall. (AP Photo/Ted S. Warren, File)
Secretary of State Steve Hobbs: ‘I wanted to serve my country’

Hobbs, a former Lake Stevens senator, is the recipient of the Henry M. Jackson Award from Economic Alliance Snohomish County.

Mark Duffy poses for a photo in his office at the Mountain Pacific Bank headquarters on Wednesday, Feb. 14, 2024 in Everett, Washington. (Annie Barker / The Herald)
Mark Duffy: Building a hometown bank; giving kids an opportunity

Mountain Pacific Bank’s founder is the recipient of the Fluke Award from Economic Alliance Snohomish County.

Barb Tolbert poses for a photo at Silver Scoop Ice Cream on Thursday, Feb. 29, 2024 in Arlington, Washington. (Annie Barker / The Herald)
Barb Tolbert: Former mayor piloted Arlington out of economic brink

Tolbert won the Elson S. Floyd Award, honoring a leader who has “created lasting opportunities” for the underserved.

Photo provided by 
Economic Alliance
Economic Alliance presented one of the Washington Rising Stem Awards to Katie Larios, a senior at Mountlake Terrace High School.
Mountlake Terrace High School senior wins state STEM award

Katie Larios was honored at an Economic Alliance gathering: “A champion for other young women of color in STEM.”

The Westwood Rainier is one of the seven ships in the Westwood line. The ships serve ports in the Pacific Northwest and Northeast Asia. (Photo provided by Swire Shipping)
Westwood Shipping Lines, an Everett mainstay, has new name

The four green-hulled Westwood vessels will keep their names, but the ships will display the Swire Shipping flag.

A Keyport ship docked at Lake Union in Seattle in June 2018. The ship spends most of the year in Alaska harvesting Golden King crab in the Bering Sea. During the summer it ties up for maintenance and repairs at Lake Union. (Keyport LLC)
In crabbers’ turbulent moment, Edmonds seafood processor ‘saved our season’

When a processing plant in Alaska closed, Edmonds-based business Keyport stepped up to solve a “no-win situation.”

Angela Harris, Executive Director of the Port of Edmonds, stands at the port’s marina on Wednesday, Jan. 24, 2024, in Edmonds, Washington. (Ryan Berry / The Herald)
Leadership, love for the Port of Edmonds got exec the job

Shoring up an aging seawall is the first order of business for Angela Harris, the first woman to lead the Edmonds port.

The Cascade Warbirds fly over Naval Station Everett. (Sue Misao / The Herald file)
Bothell High School senior awarded $2,500 to keep on flying

Cascade Warbirds scholarship helps students 16-21 continue flight training and earn a private pilot’s certificate.

Rachel Gardner, the owner of Musicology Co., a new music boutique record store on Thursday, Jan. 18, 2024 in Edmonds, Washington. Musicology Co. will open in February, selling used and new vinyl, CDs and other music-related merchandise. (Olivia Vanni / The Herald)
New Edmonds record shop intends to be a ‘destination for every musician’

Rachel Gardner opened Musicology Co. this month, filling a record store gap in Edmonds.

MyMyToyStore.com owner Tom Harrison at his brick and mortar storefront on Tuesday, Sept. 6, 2022 in Everett, Washington. (Olivia Vanni / The Herald)
Burst pipe permanently closes downtown Everett toy store

After a pipe flooded the store, MyMyToystore in downtown Everett closed. Owner Tom Harrison is already on to his next venture.

Support local journalism

If you value local news, make a gift now to support the trusted journalism you get in The Daily Herald. Donations processed in this system are not tax deductible.