Microsoft Corporation (MSFT) Uncovers Cloud but Windows Revenue takes a hit
Predictably, Microsoft Corporation (NASDAQ:MSFT) has been removing the covers from the cloud to realize its potential. As a result, the company continued strong growth by achieving more than double the revenue from the commercial cloud computing in the December quarter. The company’s CEO, Satya Nadella’s, slogan of mobile-first, and cloud-first is showing progress.
However, the concerns for Microsoft Corporation (NASDAQ:MSFT) would undoubtedly be the strong dollar currency pressuring revenues along with the slowdown in Windows Revenues, which could cast a shadow on the companies’ performance in the quarters to come.
The software solution provider realized 114% growth in commercial cloud revenue fueled by Dynamic CRM Online, Azure, and Office 365. The segment’s annualized pace of revenue was $5.5 billion. However, gain in the cloud dragged revenue from office commercial products and services by 1% while transactional revenue was unfavorably impacted by the continuous transition towards Office 365.
Microsoft Corporation (NASDAQ:MSFT)’s CEO said that the company was continuing to transform and was implementing its priorities apart from extending its leadership in cloud. He added, “We are taking bold steps forward across our business, and specifically with Windows 10, to deliver new experiences, new categories, and new opportunities to our customers.”
Windows OEM Pro and non-Pro revenue fell 13% year over year in the quarter. The fall in non-Pro revenue was attributed to growth coming from cheaper hardware that Microsoft is providing discounted licensing fees for. Commercial Windows volume licensing revenues rose 3%, while the Pro slowdown was blamed on slowing business PC sales and academic discounts.
This quarter the company grew Surface revenue 24% year-over-year to the $1.1 billion revenue mark crediting the resonating value proposition of being the most productive tablet.
The company reported net income of $5.86 billion, down 10.6% from $6.56 billion in the year-ago quarter. Similarly, earnings dipped 9% to 71 cents a share from 78 cents a share in the prior year second quarter. Results included restructuring and integration expenses of two cents a share. Excluding charges, earnings would have been 73 cents a share.
Top line advanced 8% to $26.47 billion from $24.52 billion in the previous year quarter. Devices and consumer revenue witnessed a growth of an 8% to $12.9 billion. This included 24% uptick in surface revenue to $1.1 billion fueled by Surface Pro 3 and accessories.
The company’s personal subscribers and Office 365 Home recorded 30% increase to more than 9.2 million. Significantly, advertising revenue from search advanced 23% with Bing’s market share registering 1.5 percentage points improvement. The recent holiday season helped Xbox console sales to reach 6.6 million units while revenue from phone hardware was $2.3 billion with Lumia units accounting for 10.5 million units.
During the conference call, Microsoft Corporation (NASDAQ:MSFT) disclosed that it expects currency to impact revenue uptick by about 4% in March quarter. However, this was based on the current trend and could vary depending on the market conditions. The company expects third-quarter operating expense to be $8.2 billion to $8.4 billion and has lowered full-year guidance to $33.2 billion to $33.6 billion which reduces full-year growth including NDS (Nokia Devices & Services) to 4% to 5%.
The company clarified that the guidance was based upon their current view of exchange rates and if the U.S. dollar strengthened beyond those assumptions as it did in this quarter theyu could see additional negative impact to earnings, revenue, our balance sheet and our contracted but not billed balance.
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