The company beat Wall Street expectations for its fist
quarter ended Sept. 30, with pandemic-induced demand for the software giant's
cloud-based services driving sales.
Contracts for cloud services provided by Microsoft,
Amazon.com Inc's AWS and Alphabet Inc-owned Google Cloud have surged since last
year when the COVID-19 pandemic shut offices and schools, pushing more activity
online.
First-quarter revenue growth for Azure, the company's
flagship cloud-computing business, came in at 48% in constant currency to beat analysts'
estimates of 47.5%, according to consensus data from Visible Alpha. Amy Hood,
executive vice president and chief financial officer of Microsoft, said that
the company also expected "broad based growth" for the unit in the
fiscal second quarter.
Azure's growth rate is the best direct measure of
competition with rivals such as AWS and Google Cloud as Microsoft does not
break out revenue from the cloud-computing unit.
Microsoft appeared to hold off Google Cloud's rising
challenge. Google Cloud said on Tuesday its revenue surged by 45% to $4.99 billion,
but failed to live up to estimates of $5.2 billion.
Revenue at the firm's other business units that house
Windows software, the Teams messaging service and LinkedIn professional social
networking platform also beat analyst expectations.
The supply chain issues affecting much of the global tech
industry had mixed consequences for Microsoft.
Hood said Microsoft has continued to increase its cloud
computing margins despite higher data center construction costs because it
keeps adding more profitable services to those data centers. Hood also said
that the company was able to ship more Xbox S and X gaming consoles than it
expected in the first quarter - sales of gaming consoles and accessories were
up 166% as the company continued to see strong demand for new models after the
pandemic forced millions to seek entertainment at home.
But Microsoft and its rivals have been unable to keep up
with demand because of the global chip crunch. Hood told Reuters the company
expects Xbox demand to continue to exceed supply in the company's second
quarter, which includes Christmas.
She also said that sales of the company's Surface computers,
which declined 17% in the fiscal first quarter, were likely to keep sinking in
the second quarter, with supply chain shortages hitting premium items in the
lineup.
Microsoft's revenue from selling Windows to PC makers grew
10% year over year, beating the overall PC market, which only grew 3.9% over
the same period because of supply constraints, according to data from IDC.
Hood said that the company was able to outperform in the PC
market because of its strength in selling licenses for Windows destined for
corporate customers, where it gets more revenue per license and has better
market share.
Overall, revenue rose 22% to $45.32 billion in the first
quarter ended Sept. 30, beating expectations of about $43.97 billion.
Net income rose to $20.51 billion, or $2.71 per share. The
company said its results included a $3.3 billion net income tax benefit.
On an adjusted basis it earned $2.27 per share, trumping
analyst expectations of $2.07 per share.
For the fiscal second quarter, Microsoft predicted a
midpoint of $18.23 billion in revenue for its intelligent cloud business for
the fiscal second quarter, above estimates of $17.84 billion, according to
Refinitiv data.
First-quarter revenue from "Intelligent Cloud" surged
31% to $17 billion. Analysts had expected a figure of $16.58 billion, according
to Refinitiv data.
Microsoft's forecast for its software app and Windows
centric segments with midpoints of $15.83 billion and $16.55 billion,
respectively, were also above Refinitiv estimates of $15.40 billion and $15.51
billion.
Shares of the company, which have risen nearly 40% this
year, were marginally up in extended trading.
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