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Technology Microsoft beats estimates on growth of cloud services

Microsoft reported quarterly earnings on Thursday.

Mike Blake/Reuters

Microsoft Corp beat analysts’ estimates for fourth-quarter revenue and profit on Thursday, even as sales growth began to slow for its cloud product Azure and Office software.

Since Chief Executive Satya Nadella took over in 2014, Microsoft has been shifting away from its Windows operating system software and toward cloud services, in which customers move their computing work to data centers managed by Microsoft. The company’s market value has nearly quadrupled since Nadella became CEO, and Microsoft has avoided much of the regulatory and antitrust scrutiny centered on other large tech firms Alphabet Inc, Apple Inc and Facebook Inc.

Revenue growth in Azure was 64 per cent in the reported quarter, compared with 89 per cent a year earlier and 73 per cent in the prior quarter. Microsoft does not provide an absolute revenue figure for Azure, blending it into its “intelligent cloud unit,” which had revenue of $11.4 billion compared with analyst expectations of $11.0 billion, according to Refinitiv data.

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Shares of Microsoft rose 1.2 per cent to $138.13 in extended trading.

Cloud growth powered Microsoft’s market value past $1 trillion for the first time in April. On Thursday, Microsoft’s Azure-based business segment for the first time ever reported slightly more quarterly revenue than its Windows-based segment.

In the cloud computing business, Azure’s chief rival is Amazon Web Services, which dominates the industry with a 32.8 per cent market share, according to research firm Canalys. Microsoft has a share of 14.6 per cent, while Google has 9.9 per cent. The company is also competing against Amazon.com Inc for a $10 billion contract with the U.S. Department of Defense.

Microsoft has also gained ground in the past year by bundling its Azure computing service for developers along with Office and other software products for end users, such as in the more than $2 billion cloud deal it signed with AT&T Inc earlier this week.

“The pressure was obviously on but they executed,” said Hal Eddins, chief economist for Microsoft shareholder Capital Investment Counsel. “The cloud is such a key driver of growth for them and they seem to have painted a big bullseye on the back of AWS.”

Revenue in Microsoft’s productivity software unit jumped 14.3 per cent to $11.05 billion, powered by double-digit revenue growth for LinkedIn and Office 365. Analysts on average had expected revenue of $10.71 billion, according to IBES data from Refinitiv.

Meanwhile, its personal computing division, home to Windows software, rose to $11.3 billion, compared with analyst estimates of $10.98 billion. The unit also includes Xbox gaming consoles, the Bing online search service and Surface laptops.

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Microsoft’s net income rose to $13.19 billion or $1.71 per share in the quarter ended June 30, from $8.87 billion or $1.14 per share a year earlier.

Excluding items, the company earned $1.37 per share, topping estimates of $1.21 per share.

Total revenue rose 12 per cent to $33.72 billion, above average analysts’ estimates of $32.77 billion.

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