Microsoft Azure, Security, Teams Drive Record Quarter

Microsoft reported $51.7 billion in revenue for the second fiscal quarter, a 20 percent increase year over year.

Microsoft Teams, Azure and security all helped push the company to a record quarter, executives reported on an earnings call Tuesday. And the company plans to invest in further developing its security offerings as well as realizing the potential of bringing metaverse technology to businesses.

Demand for digital technologies delivered double-digit revenue growth across each of Microsoft’s business segments, according to the company. And Microsoft CEO Satya Nadella told analysts that he believes the Redmond, Wash.-based tech giant’s products and services will see demand even after the global pandemic.

Even if supply shocks go away, Nadella said, “the one thing that isn’t going to go away is the need for increasing levels of digitization, both in terms of tools that people use to improve the productivity of your Opex and the cogs you have in your enterprise will probably now have a digital component to it because that‘s where the leverage of cost will come.”

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“I always go back to that simple formula: As a percentage of GDP, what is IT spend broadly defined?” Nadella said. “And what is it going to be a year from now, two years from now, five years from now, 10 years from now? It‘s just going to be more. And we’ve got to do a good job of seeing the trends before they’re conventional wisdom and gaining share. And so that‘s where we will remain focused.”

Metaverse The Next Internet

Microsoft products for smart factories, smart buildings and smart cities all play in the emerging space of the metaverse that combines digital twins, virtual reality, augmented reality, Internet of Things and gaming.

Nadella highlighted Microsoft products including the HoloLens headset, Azure IoT, Azure Digital Twins, Dynamics 365 Connected Spaces and Microsoft Mesh as positioning the tech giant to be a force when companies adopt metaverse technologies.

During CES 2022, Microsoft and Qualcomm announced a collaboration around a custom Snapdragon chip for lightweight augmented reality glasses by Microsoft.

He called Connected Spaces a “new software category for its capabilities for managing physical operations. Dynamics products and cloud services revenue increased 29 percent. Dynamics 365 revenue grew 45 percent.

An early example is users of the Microsoft Teams communications platform using Mesh for immersive meetings with VR and AR devices.

“The way we see this is as an opportunity in a very classic Microsoft sense both at the platform infrastructure level and in the application level,” Nadella said.

He continued: “We feel very well positioned to be able to catch what I think is essentially the next wave of the internet, right? Just like the first wave of the internet allowed everybody to build a website, I think the next wave of the internet will be a more open world where people can build their own metaverse worlds, whether they‘re organizations or game developers or anyone else.”

Teams Grows As Phone Service

Teams surpassed 270 million monthly active users in the quarter.

The use of Teams has led to a surge in hardware, with the number of active Teams Rooms devices more than doubling year over year, according to Microsoft.

The platform has also grown in use as a phone system. More than 90 percent of Fortune 500 companies used Teams Phone this quarter. “We continue to take share across PSTN [public switched telephone network] and VoIP as organizations like Bank of Montreal, Chevron, General Motors, LVMH and NetApp turn to Teams to meet their internal and external collaboration needs,” Nadella said.

“All up, we’ve seen Teams growth in every segment, frontline worker usage up 2X year over year. Zebra Technologies will bring Teams walkie-talkie communications to devices used by millions of employees on retail floors. And Walmart chose Teams for more than 2 million frontline workers this quarter.”

Teams Essentials, an offering aimed at small businesses, is still in “early days,” Nadella said. “But we are very encouraged by the strong demand.”

Security Surge

Nadella pitched Microsoft’s security services as a cost saver to customers and revenue generator for the company.

Customers save 60 percent compared with multivendor services, Nadella said. Microsoft’s security business revenue surpassed $15 billion over the past 12 months, up about 45 percent year over year.

“All up, the number of customers that use our advanced security solutions accelerated this quarter to over 715,000,” Nadella said. “More than half have four or more workloads, up 75 percent year over year, underscoring our end-to-end differentiation.”

When asked on the call about Microsoft monetizing its security services, Nadella said that multi-cloud, multi-platform environments are a chance for Microsoft to collect on its services.

“Our monetization is about really recognizing that the real world is not some homogenous Microsoft infrastructure world,” Nadella said.

Microsoft’s security services integrate more than 50 categories across security, compliance, identity, device management and privacy, Nadella said, and are informed by more than 24 trillion threat signals seen a day.

More than 15,000 customers now use cloud-native security information and event management (SIEM) tool Microsoft Sentinel, up more than 70 percent year over year.

Jay Parekh, a vice president at Bannockburn, Ill.-based Microsoft partner Netrix, told CRN in an interview that partners win if Microsoft provides quality security services so that users don’t have to go to third parties such as CrowdStrike and McAfee.

Microsoft Defender for Endpoints and Sentinel have garnered interest among his customers, and Netrix continues to invest in offering managed security services, Parekh said.

“If I could get all of that under one agreement and save some costs, and I‘d have a single throat to choke, that makes my life easier for vendor procurement and as well as renewals,” he said.

Odds And Ends

Giving some highlights in the Azure suite, Nadella said that hybrid cloud tool Azure Arc saw its customer base triple year over year. Azure Cognitive Services saw more than 30 million hours of speech transcribed last quarter, about doubled the amount year over year.

The acquisition of voice-to-text company Nuance is on track to close in the third quarter, according to Microsoft.

Recently released employee engagement tool Viva reached more than 1,000 paying customers.

Nadella said he’s “delighted” by the response three months after the launch of Windows 11. Microsoft reported more than 1.4 billion monthly active devices running Windows 10 or Windows 11 and that Windows 11 users engage with the Windows apps store about three times the rate of Windows 10 users.

Power Apps saw 161 percent revenue growth during the quarter.

Quarterly Results

Microsoft reported $51.7 billion in revenue for the second fiscal quarter, which ended on Dec. 31. That revenue is a 20 percent increase year over year.

Microsoft Cloud revenue reached $22.1 billion for the quarter, up 32 percent year over year.

Productivity and business processes reached $15.9 billion, a 19 percent increase. This segment includes Office Commercial products and cloud services, which saw revenue increase 14 percent.

Office 365 revenue increased 19 percent, driven by growth in small and midsize businesses and frontline worker offerings. Microsoft 365 subscriptions grew 19 percent to 56.4 million. LinkedIn revenue grew 37 percent.

The intelligent cloud segment reached $18.3 billion for the quarter, up 26 percent year over year. Server products and cloud services revenue increased 29 percent. Azure and other cloud services revenue grew 46 percent.

The “more personal computing” segment reached $17.5 billion, an increase of 15 percent. Windows OEM revenue increased 25 percent driven by increased PC demand and use. Windows commercial products and cloud services revenue increased 13 percent. Surface revenue increased 8 percent, with Microsoft shipping more devices than expected.

This segment also includes Xbox content and services and search and news advertising revenue.

For next quarter, the company expects productivity and business processes revenue between $15.6 billion and $15.85 billion. In intelligent cloud, the company expects between $18.75 billion and $19 billion. And the “more personal computing” segment is expected to reach between $14.15 billion and $14.45 billion.

Microsoft traded at $292 a share after hours Tuesday, up about 1 percent.