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Microsoft Cloud Growth Takes Sting Out Of Tax Charge

Tom Jowitt is a leading British tech freelance and long standing contributor to TechWeek Europe

Redmond pleases Wall Street thanks to strong showing of cloud, but takes $13.8bn charge for US tax changes

Microsoft’s quarterly profit has been hit hard after the software giant took a massive financial charge relating to a change in US tax law.

But overall the second quarter results pleased investors and Wall Street, thanks to the fact that Microsoft benefited from strong growth in its cloud operations – an area of strong focus in recent times.

Cloud Growth

For the three months ending 31 December, Microsoft posted a 201 percent decline after revealing a net loss of $6.3 billion (£4.4bn) compared to a net profit of $6.3bn (£4.4bn) in the same year-ago period.

However this was mostly down to the fact that Redmond took a very stiff $13.8bn (£9.7bn) one-time charge due to the new US tax law.

It should be noted that many American companies are currently taking large one-time charges to account for changes to the US tax law in December, which cut the overall corporate rate and offered a lowered rate for companies repatriating overseas profits to the United States.

The good news however is that revenues at Microsoft rose 12 percent to $28.918bn (£20.3bn) from $25.826bn (£18.1bn) in 2016, beating analysts’ expectations of $28.40bn (£19.9bn).

“This quarter’s results speak to the differentiated value we are delivering to customers across our productivity solutions and as the hybrid cloud provider of choice,” said CEO Satya Nadella.

“Our investments in IoT, data, and AI services across cloud and the edge position us to further accelerate growth.”

Divisional Performance

So how did Redmond took in its various divisions? Well, this latest quarter was the 10th in a row of more than 90 percent revenue growth for its flagship Azure cloud computing service

Revenue from what Microsoft calls its intelligent cloud segment rose 15.3 percent to $7.8bn (£5.5bn) in the second quarter, including 98 percent growth for Azure.

Analysts on average had expected $7.51bn (£5.3bn), according to Reuters.

Revenue in Personal Computing which includes Windows, Xbox and Surface, rose $12.2bn (£8.5bn), and revenue from its productivity and business unit, which includes the Office 365 service, was up to $8.9bn (£6.3bn).

Microsoft remains locked in a bitter cloud battle with Amazon Web Services, which according to research firm Canalys holds a 31.8 percent market share.

Azure holds the second position with 13.9 percent of the market.

It should be noted that after exiting many consumer sectors (mobile, Band, Groove etc), besides focusing on enterprise cloud, Microsoft is also investing heavily in artificial intelligence going forward.

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