Microsoft Disappoints As Azure Growth Slows

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Stocks take a hit as Azure cloud growth slows, but Redmond still grows and remains profitable

Microsoft reported a growth slowdown in its Azure Cloud, which has alarmed Wall Street despite the firm’s solid quarterly financials.

Shares in the company fell 3 percent in after hours trading over investor concern at Redmond’s performance in the fast-growing cloud segment, where Microsoft has sunk its focus on – shifting away from its legacy consumer business such as Windows.

That said, this focus on the cloud (and to some a retreat from the consumer market) under the leadership of CEO Satya Nadella has helped Microsoft become one of the most valuable tech firms in the world.

Azure growth

Microsoft is now firmly in second place in the cloud market behind Amazon Web Services. This cloud presence has helped Microsoft deliver solid financials in recent years.

For the second quarter ending 31 December, Microsoft posted a net profit of $8.4bn, compared to a net loss of $6.3bn in the same year-ago quarter.

Overall revenues rose 12.3 percent to $32.5bn from $28.9bn a year earlier, helped by the 76 percent rise in cloud revenues to $9bn.

But this was down from Azure’s 98 percent growth a year earlier, which caused some investors to take fright.

Yet despite Microsoft’s tight focus on the cloud, the biggest revenue generator still remains Microsoft’s personal computing division (compromised of Windows operating system, bing, Xbox etc) where sales grew 7 percent to $13bn.

Meanwhile Microsoft’s productivity software unit revenues climbed 13 percent to $10.1 billion, thanks to strong performances from LinkedIn and Office 365.

“Our strong commercial cloud results reflect our deep and growing partnerships with leading companies in every industry including retail, financial services, and healthcare,” said CEO Nadella. “We are delivering differentiated value across the cloud and edge as we work to earn customer trust every day.”

Consumer retreat?

Whilst Nadella’s cloud focus has pleased investors and helped the firm deliver solid financials, some observers remains concerned at Microsoft’s commitment to its consumer market heritage.

Earlier this month for example Microsoft finally admitted there is no recovery from its ignominious retreat from the smartphone sector, after it advised Windows 10 Mobile diehards to switch to either Android or iOS handsets.

There is also concern about the future of Cortana in the consumer space, and matters were not helped when Microsoft signalled another consumer retreat last October when it confirmed that it was shutting its Groove Music service and told its users to switch to Spotify.

Microsoft has also been accused of ignoring Skype, which has been in decline against the likes of WhatsApp and Apple Facetime.

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Author: Tom Jowitt
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