Microsoft Reports 'Outstanding' Results From Channel Partners As Azure And Office 365 Soar

Microsoft reported growth across all three of its segments in its most recent quarter, including in its typically sluggish personal computing division, with the strongest results continuing to come from cloud offerings such as Azure and Office 365.

Azure revenue nearly doubled during Microsoft's second quarter of fiscal 2018, ended Dec. 31, compared to the same period a year earlier. That marked the tenth straight quarter of Microsoft reporting that Azure revenue grew 90 percent or more on a year-over-year basis.

For Microsoft's fiscal Q2 overall, revenue climbed 12 percent to $28.92 billion, up from $24.1 billion during the same period a year earlier.

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"The intelligent cloud, intelligent edge paradigm is fast becoming a reality," Microsoft CEO Satya Nadella said during the company's quarterly earnings call Wednesday.

"As intelligent cloud, intelligent edge becomes more predominant, our architectural advantage is increasingly clear to our customers," Nadella said. "This architectural advantage helps us address existing enterprise workloads and new workloads such as IoT and edge AI."

Microsoft reported that its intelligent cloud segment grew 15 percent during the fiscal second quarter, to $7.79 billion in revenue, compared to a year earlier. Those results included 98-percent revenue growth in Azure and 5-percent revenue growth in enterprise services.

Nadella singled out Azure Stack, the company's hybrid cloud platform, as a source of "incredible customer demand" during the recent quarter. "We're the only cloud provider that provides true hybrid cloud computing with Azure and Azure Stack," Nadella said during the quarterly earnings call.

Microsoft "was one of the first large players in the market to offer both PaaS and IaaS, allowing companies to have a one-stop shop for their cloud needs early," said Jeffrey Davis, chairman and CEO of St. Louis-based Perficient, No. 57 on the CRN Solution Provider 500.

"Microsoft invested ahead of demand which, we believe, has led to the recent momentum," Davis said. "The trajectory looks great for Microsoft considering cloud maturity in the market and Microsoft's overall brand around cloud technologies."

The Redmond, Wash.-based company saw even sharper revenue growth during Q2 in its productivity and business processes segment, which rose 25 percent from the same period a year earlier, to $8.95 billion.

LinkedIn contributed $1.3 billion to the top line, while Office 365 commercial revenue surged 41 percent and Dynamics 365 jumped 67 percent year-over-year.

"Our sales team and channel partners delivered another quarter of outstanding commercial results, even as we continued to work through our sales reorganization from July," Microsoft CFO Amy Hood said during the quarterly call Wednesday.

Microsoft rolled out sweeping changes for its sales organization and channel partners in July 2017, including new incentives for its salespeople to work more closely with solution providers.

"Partner strategy has always been a strength for Microsoft. They have a large ecosystem and they certainly leveraged that for early success with Azure and Office 365," Davis told CRN.

For Microsoft's largest division, its personal computing segment, the fiscal second quarter produced modest year-over-year revenue growth of 2 percent – though that is in contrast to many recent quarters of falling revenue in the PC segment.

Windows OEM revenue grew 4 percent, ahead of Microsoft's expectations, while sales of Surface devices rose 1 percent and gaming revenue increased 8 percent. Windows commercial products and cloud services fell 4 percent, which Microsoft attributed to an unspecified "large deal" from the same quarter of 2017.

Microsoft reported that its repatriation of money held overseas, which the company is returning to the U.S. in connection with the Tax Cuts and Jobs Act, resulted in a net charge of $13.8 billion in fiscal Q2. Corporations that are repatriating funds must pay a 15.5 percent tax as part of returning cash and cash equivalents to the U.S.

Microsoft executives did not elaborate on the company's repatriation plans during the quarterly call.

The net charge in fiscal Q2 led Microsoft to record a net loss of $6.3 billion, or 82 cents per share, on a GAAP basis during the quarter. The same quarter a year ago had produced GAAP earnings for Microsoft of $5.2 billion, or 66 cents a share.

On a non-GAAP basis, Microsoft generated net income in Q2 of $7.5 billion, or 96 cents per share. That is up from $6.5 billion, or 83 cents a share, a year earlier.

While Microsoft executives did not address the Spectre and Meltdown processor vulnerabilities at length on Wednesday, Nadella did use the quarterly call to contend that the company's investments into Windows 10 "enabled us to move quickly to protect customers in the face of these threats."