Microsoft's cloud continues to grow as it chases Amazon
Microsoft reported encouraging growth Wednesday in what is becoming its most important business: cloud computing.
The company, which has focused on the cloud to lead it into the post-PC era, had a lot to celebrate as it looks to catch up to Amazon - its archrival for cloud dominance. (Amazon chief executive Jeff Bezos is the owner of The Washington Post.) Cloud growth drove the bulk of Microsoft's success in its latest quarter, solidifying its second-place position in the market.
The unit containing its Azure cloud computing division made $7.8 billion in the company's latest quarter. While Microsoft doesn't provide dollar figures for each product, it said that revenue from Azure itself jumped 98 percent. The firm's Office 365 product - which takes its signature Office software into the cloud - saw a 41 percent increase in revenue.
Microsoft also saw strong hardware growth thanks to the November launch of its Xbox One X game console.
Apart from the financial info, Microsoft chief executive Satya Nadella took a moment during a call with analysts to address consumer trust issues facing the tech industry at large. He did not name any specific competitors, but said that "Microsoft runs on trust" and views that as a key differentiator. "In an era where there is rapid transformation driven by digital technology, customers are looking for a trusted partner. Someone with a business model that is aligned with their long-term interests, deep technical innovation, and an understanding of the responsibility that goes along with this innovation," Nadella said.
Overall, Microsoft slightly beat analyst expectations by reporting revenue of $28.9 billion. But a one-time $13.8 billion tax charge, a result of the new U.S. tax law, tipped the company into the loss column to the tune of $6.3 billion. Microsoft said that it has "not completed" its full account for further tax effects of the tax bill.
The company also reported growth in its hardware business on sales of the Xbox One X, which is aimed at hard-core gamers. Microsoft said that gaming revenue was up 8 percent in the gaming industry's all-important holiday quarter.
That wasn't quite as strong as competitor Nintendo, which reported its own banner earnings and a 261 percent profit growth off sales of the Nintendo Switch console. That console, which can be used on-the-go or in the living room, led both Microsoft's and Sony's consoles in December sales, according to a report last week from market research firm NPD Group. Sony, which reports earnings Friday, led console sales for the year with its PlayStation, that report said.
When asked if Microsoft was falling behind in gaming, Nadella said Microsoft sees games as an opportunity beyond the console - especially with gaming cloud and entertainment services on the PC.
Looking at other hardware, Microsoft said that sales of its Surface products were largely unchanged from the previous year - despite the introduction of new hybrid Surface laptops. Microsoft has been more focused on hardware lately, introducing touch screen laptops and desktops that deeply integrate the Windows platform, but the unit containing hardware grew the slowest for Microsoft.
Nadella also said that he's not concerned about Amazon's early lead in the artificial intelligence space, because he believes that its assistant - Cortana - and others should be available on the same devices.