Commentary

Azure Skies For Microsoft's Cloud

LinkedIn lost money in its first quarter as a member of the Microsoft family but overall Q2 2017 looked good with its Azure cloud computing business performing notably well, increasing 93% from a year ago. “Commercial cloud annualized revenue run rate exceeds $14.0 billion,” crows the subhed on its release for its earnings for the three months ending Dec. 31. 

“Microsoft has found success in moving its software businesses like Office to the cloud, and creating businesses to compete with Amazon in the booming market for hosting computing chores in data centers,” reports Nick Wingfield for the New York Times. “Cloud computing represents one of the biggest shifts in technology, in which applications and other computing functions are handled in data centers connected to the Internet, rather than locally.” 

“We know their cloud business is doing well,” Christopher Voce, an analyst at Forrester Research, tells Wingfield. “They delivered on that front.”

Azure “competes with cloud infrastructure offerings from market leader Amazon.com Inc., Alphabet Inc.'s Google, IBM and Oracle Corp.,” report Reuters’ Narottam Medhora and Stephen Nellis.

“We're not at Amazon's margin today,” Chris Suh, head of Microsoft's investor relations, said yesterday. “Their infrastructure business is much larger. They have the benefit of scale. We track more like what Amazon was when they were closer to our size.”

“On the company's earnings conference call” last night, Medhora and Nellis report, CFO Amy Hood “fielded questions from analysts about Azure-specific gross margins. She did not disclose a number but said there was a ‘material improvement’ since last quarter.”

“It's clear that Microsoft is a very strong No. 2, and distancing themselves from Google Cloud,” Stifel Nicolaus & Co. analyst Brad Reback tells MarketWatch’s Jay Greene.

“Microsoft has shuffled their product groups around a bit for reporting, and they now have three groups named Productivity and Business Processes, Intelligent Cloud, and More Personal Computing,” Brett Howse reports for Anandtech

  • Productivity and Business Processes, featuring Office commercial and cloud products, Office 365 commercial and consumer, as well as Dynamics and LinkedIn, was up 10%.
  • Intelligent Cloud consists of Microsoft’s server products — both on-premise and cloud products including Azure. It was up 8% from a year ago overall.
  • More Personal Computing fell 5% over last year but had the highest revenue, $11.82 billion, of the segments compared to the same period last year. Xbox software and services were up 18%, and Xbox Live active users grew 15% to 55 million across all of Microsoft’s platforms. Search revenue was up 10%.

“Our customers are seeing greater value and opportunity as we partner with them through their digital transformation,” CEO Satya Nadella said in the earnings release. “Accelerating advancements in AI across our platforms and services will provide further opportunity to drive growth in the Microsoft Cloud.”

And during the analysts call, “Nadella pointed to artificial intelligence as a major area of focus for the future and touted Office's growth,” Alex Konrad reports for Forbes. About LinkedIn, he said: “Our top priority is to ensure we innovate and drive value for LinkedIn members and improve their daily engagement.” 

Last week, the networking site for professionals began rolling out a makeover — it’s first major overhaul since it was launched in 2003. The hed on Joanna Stern’s mostly positive review in the Wall Street Journal was “LinkedIn’s Website Is No Longer Terrible.”

She was coming off a very low base, however. 

Stern’s lede: “If presented with the choice of spending time on LinkedIn’s Website or sitting in the airplane middle seat, next to someone eating a sardine sandwich, one row in front of the lavatory, I’d say it was a tough decision.”

It doesn’t stink anymore may not be the best recommendation I’ve ever read, but things are certainly looking rosier at Microsoft than they were a while back.

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