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Microsoft 'Crushes' Quarterly Numbers As Azure Chases AWS

Azure's revenue growth pace picked back up during Microsoft's fiscal Q2, with the cloud platform surging 62 percent.

Microsoft surged past Wall Street expectations for its latest quarterly revenue by more than $1 billion thanks to strong cloud growth, which one analyst said suggests Microsoft's Azure cloud platform is starting to "close the gap" with market-share leader Amazon Web Services.

The summary for Microsoft's second quarter of fiscal 2020, ended Dec. 31, was: "Redmond crushes [its] cloud numbers," wrote Daniel Ives, managing director for equity research at Wedbush Securities, in a note to investors.

[Related: 5 Key Announcements At Microsoft Ignite 2019]

"While AWS remains the leader in cloud, we believe MSFT is starting to clearly 'close the gap' as Redmond is seeing an acceleration of spending among enterprises around public/hybrid cloud deployments, especially with the momentum through its all-important partner channel,” Ives wrote.

The Redmond, Wash.-based company reported $36.91 billion in revenue for its fiscal second quarter, versus Wall Street consensus estimates of $35.67 billion. Microsoft's stock price rose 4.5 percent in after-hours trading Wednesday to $175.59 per share.

The quarterly results represented a 13.7-percent increase from $32.47 billion in revenue during the same period a year earlier.

One of the surprises of the quarter was the re-acceleration of growth in the Azure business.

While the growth pace had slowed down in recent quarters as Azure has expanded into a huge business, the pace picked back up a bit in Microsoft's fiscal Q2 with 62-percent year-over-year revenue growth for Azure. That compared to 59-percent Azure growth in the previous quarter, sequentially.

When asked about the re-acceleration of Azure growth during a call Wednesday with analysts, CEO Satya Nadella cited differentiators in the cloud platform from other competing providers--including with the hybrid computing capabilities of Azure.

"We have a stack, from infrastructure to the [Platform-as-a-Service], that's fairly differentiated," Nadella said. "Take something like Azure Arc. The fact that we have a control plane for hybrid computing that is multi-cloud, multi-edge--that's a pretty differentiated aspect of it."

Meanwhile, on the data side, "we now have cloud-native databases. And Azure Synapse I think is a very competitive product," Nadella said, referring to Microsoft's combination offering of data warehousing and big data analytics.

"So that's what you see play out, in terms of customer adoption and the growth there," he said.

During its second fiscal quarter, Microsoft reported that its intelligent cloud segment, which includes Azure, jumped 26.5 percent from the same period a year earlier to $11.87 billion in revenue.

On productivity and business processes, the segment saw 17.1 percent growth year-over-year to $11.83 billion during the quarter. The results were buoyed by 27-percent growth in Office 365 commercial revenue, a 24-percent revenue increase for LinkedIn and 42-percent growth of Dynamics 365 revenue.

When it comes to Dynamics 365, the world "needs a business application suite that is more comprehensive, that can turn what is the real currency of this next era--which is data--into predictions, insights and automation," Nadella said.

Microsoft's largest segment, personal computing, also managed to grow during the company's fiscal Q2 despite an ongoing shortage of Intel processors used in most Windows 10 PCs.

The personal computing segment climbed 1.7 percent to $13.21 billion, driven by Windows OEM growth of 18 percent and Windows commercial products and cloud services growth of 25 percent. Revenue from Surface devices rose 6 percent during the quarter, while revenue from Xbox content and services fell 11 percent.

Net income during the quarter increased to $11.65 billion, or $1.51 per diluted share, up from $8.42 billion, or $1.08 per diluted share, during the same period a year earlier. The Wall Street analyst consensus had estimated Microsoft’s earnings at $1.32 per share during the quarter.

Microsoft has been looking at 2020 with an array of expanded and new opportunities for solution providers, Microsoft Channel Chief Gavriella Schuster said in a recent interview with CRN.

Among the opportunities discussed by Schuster include Windows Virtual Desktop, which simplifies the deployment of virtual desktops while providing a less expensive licensing model; data center migrations to Azure; and Azure Synapse Analytics.

Ultimately, "we couldn't do this without the ecosystem that surrounds us and the tremendous success of our partners," Schuster said.

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