Cloud strength boosts Microsoft

Microsoft has posted earnings and revenue that beat Wall Street expectations i n Satya Nadella's first quarterly earnings release as chief executive , offering new justification for his focus on cloud computing.

Microsoft has posted 1Q results that justify CEO Satya Nadella's faith in cloud computing (AP)
Microsoft has posted 1Q results that justify CEO Satya Nadella's faith in cloud computing (AP)

Factoring out special items from a year ago, revenue in the January-March quarter grew 8%.

Mr Nadella, who replaced long-time CEO Steve Ballmer in February, said the quarter's results "demonstrate the strength of our business, as well as the opportunities we see in a mobile-first, cloud-first world".

Microsoft's stock rose 1.09 dollars, or 2.7%, to 40.95 in after-hours trading after the results were released. That followed a 17-cent gain to 39.86 in the regular session.

"It's a good first quarter of earnings for Satya out of the box," said analyst Shannon Cross of Cross Research. "This was enough to offset concerns that investors might have had that growth was slowing or the impact Amazon or other competitors might be having on the cloud strategy."

The company also benefited from the end of support for its 13-year-old operating system, Windows XP, on April 8. Many companies upgraded computers en masse to make sure they would continue to receive support from Microsoft, including anti-virus updates.

That transition - which helped boost Windows revenue by 4% - helped Microsoft buck a 2-4% decline in shipments in the quarter as estimated by market research firms Gartner and IDC.

Chris Suh, Microsoft's general manager of investor relations, said it was hard to tell how much Windows revenue benefited from the end of XP. But he said about 10% of all Windows computers were still running XP, meaning the company would probably continue to benefit going forward.

"It's probably not done. There's a bit of a long tail that will drag out over a long period of time," he said.

Overall, Microsoft posted flat revenue and a decline in net income for the January-March quarter.

Revenue gains from its Windows operating system and cloud computing services like Azure were offset by the lack of special upgrade offer revenues from a year ago.

Net income in the quarter through March 31 came to 5.66 billion dollars (£3.3bn), or 68 cents per share, down from 6.06 billion dollars (£3.6bn), or 72 cents per share, in the same period a year ago.

Revenue was nearly unchanged at 20.40 billion dollars (£12.1bn), compared with 20.49 billion (£12.19bn) a year ago.

Analysts polled by FactSet expected Microsoft to post earnings of 63 cents per share on revenue of 20.39 billion dollars.

Revenue from devices and consumer products rose 12% to 8.30 billion dollars (£4.9bn) as the company sold more Xbox One game consoles and consumers upgraded systems from Windows XP, for which Microsoft ended support earlier this month.

Commercial revenue grew 7% to 12.23 billion dollars (£7.2bn), as revenue grew from its Office 365 productivity software. Azure revenue more than doubled.

Total revenue gains of 1.7 billion dollars from various segments were offset by a 1.8 billion-dollar decline in upgrade offers revenue and other items.