With the software market moving away from its traditional business model and onto cloud computing and mobile applications, Microsoft under Satya Nadella is reporting strong steady growth, but has miles to go before it can catch up with Amazon’s Web Services, the industry leader.
Thanks to heightened and fast-growing demand for cloud computing from businesses, Microsoft Corp has reported a 3.6% rise in its second-quarter profits. However, it has reported a slight drop in margins, including in its flagship cloud platform, Azure.
With the news hitting the market, Microsoft’s shares were seen trading at 1.1% in after-hours trading.
With Satya Nadella at Microsoft’s helm, he has steered the company away from its traditional software business into cloud computing and mobile applications.
According to Chris Suh, Microsoft’s investor relations, the gross margin of the world’s second biggest software company, which include Azure and versions of its online Office suit, Office 365, rose by 48%.
In the previous quarter, Microsoft had reported business from this “commercial cloud” at 49%, however in the previous year, during the same comparative quarter, business from the commercial cloud had stood at 46%, said Suh.
Incidentally, Microsoft’s Azure platform currently competes with other cloud infrastructure offering from other companies including from Alphabet’s Google, Amazon, IBM and Oracle.
“We’re not at Amazon’s margin today,” said Suh. “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.”
During the company’s earnings conference call, Microsoft’s CFO, Amy Hood, replied to analysts’ queries on Azure-specific gross margins without however disclosing any figures.
Hood disclosed that there was “material improvement” since last quarter.
Microsoft’s CEO, Nadella emphasized the fact that the company thinks of its cloud business as a comprehensive line-up of both software and infrastructure, just as it did with its historical business as a combination of products with different margins, like Office and Windows Server.
“We have a cloud strategy that is not just about infrastructure,” stated Nadella highlighting the differences with Amazon Web Services.
“In general, as long as it’s close to doubling right now, that’s extremely solid performance given the business is getting big from an overall standpoint,” said Shannon Cross an analyst with Cross Research.
Microsoft’s net income has risen to $5.20 billion, from $5.02 billion in the quarter ended December 31, which is 66 cents per share compared to the 62 cents per share from a year earlier.
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