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Microsoft CEO: We're 'Accelerating Our Lead' With Azure, Dynamics 365

CEO Satya Nadella says the company's 'intelligent cloud, intelligent edge' focus paid off during the fourth quarter of fiscal 2018.

Microsoft capped off its fiscal 2018—a year that saw a sweeping re-organization impacting its sales teams and channel partners alike—with strong revenue growth across its cloud, productivity and PC businesses.

"I shared our vision for the intelligent cloud and the intelligent edge a little over a year ago—a vision that is now quickly becoming reality, and impacting every customer in every industry," CEO Satya Nadella said during Microsoft's quarterly earnings call with analysts Thursday. "Everything we have accomplished this year has been about accelerating our lead in this new era."

[Related: 10 Major Microsoft Announcements At Inspire 2018 ]

Revenue for the fourth quarter of fiscal 2018, ended June 30, climbed to $30.08 billion, up 17 percent from $25.6 billion during the same period a year earlier.

Leading the quarterly growth were an 89 percent gain in revenue for Azure and 61 percent sales growth for Dynamics 365. Surface revenue grew by 25 percent, and both Office 365 and Windows saw a double-digit increase in sales.

The results at Redmond, Wash.-based Microsoft reflect "accelerating innovation and the trust customers are placing in us to power their digital transformation," Nadella said during the earnings call.

In cloud, "we're investing aggressively to build Azure as the world's computer," he said. "We expanded our global data center footprint to 54 regions, more than any other cloud provider, and with the most comprehensive compliance coverage in the industry."

Microsoft added nearly 500 new Azure capabilities in the past year, including solutions for emerging workloads such as the Internet of Things and artificial intelligence at the edge, Nadella said.

Nadella also singled out the release of the Azure Stack hybrid cloud platform and Azure Sphere edge security platform over the past year—"two first-of-their-kind cloud-to-edge solutions that are already seeing strong customer demand."

The 89-percent surge in Azure revenue helped Microsoft to reach $9.6 billion in revenue for its intelligent cloud segment, up 23 percent from a year earlier. Enterprise services rose 8 percent during the quarter, meanwhile.

Microsoft's productivity and business processes segment climbed 13 percent, year over year, to $9.66 billion during the fourth quarter. Along with the 61-percent spike in sales for Dynamics 365, the segment was driven by 10 percent growth in Office 365 commercial revenue and 37 percent growth in LinkedIn revenue. Revenue for Office commercial products and cloud services overall increased 10 percent.

The Microsoft 365 suite—which bundles Office 365, Windows 10, enterprise mobility and security capabilities, and launched a year ago—is "now a multibillion-dollar business," Nadella said. Highlights include the adoption of the Microsoft Teams collaboration app by 200,000 organizations.

As for Dynamics 365, the combination CRM and ERP system is catching on because it "gives organizations an alternative to monolithic, siloed suites of business applications," Nadella said. During the fourth quarter, Dynamics 365 "gained traction as our third commercial cloud growth engine," he said.

PC Growth

Microsoft's personal computing segment saw even stronger growth than the productivity segment, in spite of challenging conditions in the PC market. The segment jumped 17 percent to reach $10.81 billion in revenue during the fourth quarter. Gaming led the way with 39 percent revenue growth, followed by the 25-percent increase in Surface revenue.

Windows commercial products and cloud services also saw strong revenue growth of 23 percent, while Windows revenue rose 11 percent, thanks in part to an increase in Windows OEM revenue of 7 percent. Windows 10 is now active on nearly 700 million devices, and "the growth of the enterprise deployments this year exceeded our expectations," Nadella said.

Central to Microsoft's success has been its focus on working with partners, said Javed Sikander, CTO for cloud services at NetEnrich, a San Jose, Calif.-based partner of Microsoft. "It's a winning strategy," Sikander said. "They clearly are aligned to benefit the partners."

Microsoft provides programs for partners "from the first engagement with customers down to the [deployment of] full solutions," he said. "It's not just about dollars, but also it's the access to the Microsoft people."

Nadella, who gave an hourlong keynote at Microsoft's Inspire 2018 partner conference this week in Las Vegas, said during the earnings call that "Microsoft has always been a partner-led company, and partners increasingly see more opportunity on our platforms."

Results From The Re-Org

Microsoft's fiscal 2017 saw massive organizational and compensation changes, meant to focus the company on core industries and bring its salespeople into alignment with partner priorities. Key initiatives have included compensating internal salespeople on consumption of Azure and Office 365—which executives say has helped to prompt reps to work with partners —as well as launching incentives to promote the co-selling of solutions between field sales and partners.

Total revenue for Microsoft's fiscal 2017 came in at $110.36 billion, up 14.2 percent from $96.57 billion during fiscal 2016.

GAAP net income for fiscal 2017 was $16.57 billion, down from $25.48 billion the year before. Non-GAAP net income rose to $30.26 billion during fiscal 2017 from $25.73 billion the previous fiscal year.

At Microsoft's Inspire 2018 partner conference this week, Channel Chief Gavriella Schuster said that Microsoft and its partners had "an incredible year together" over the past 12 months. She pointed to IDC research that suggests partners earned nearly $1 trillion over the past fiscal year through working with Microsoft services . And that momentum is only expected to accelerate from here, she said.

"This is the week that gets us off to the fastest start to a fiscal year that we've ever had," Schuster said during her Inspire keynote.

GitHub

During the earnings call Thursday, Nadella also addressed Microsoft's deal to acquire open source code repository GitHub for $7.5 billion, which was announced in June and is expected to close by the end of the year.

"With GitHub, we recognized the increasingly vital role that developers play in value creation and growth in the era of the intelligent cloud and intelligent edge," Nadella said. "Our pending acquisition will enable us to bring our tools and services to new audiences, while enabling GitHub to grow and retain its independence and developer-first ethos and community."

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