Microsoft Earnings Strengthen due to Cloud Computing

Microsoft posted first quarter net earnings that far exceeded the expectation of Wall Street, largely in part due to the success of cloud computing. Microsoft new CEO Satya Nadella felt justified in his direction for the company to focus on the development of cloud computing.

More than double the expected revenue

Nadella was quite satisfied and happy to announce that the revenue from Office 365, which is the cloud based productivity application of Microsoft, was more than doubled. That was coming from commercial customers. On the other hand, Azure, the company’s own cloud computing service posted over 150% growth.

Nadella was very happy with the latest developments, likening it to a gold rush and said that it is time to capitalize on the opportunity that this success provides. Investors were told by Nadella that Office 365 is the central engine that is driving the cloud computing system. In this regard, Microsoft is progressively orienting its MS Office programs such as Excel to better integrate with large chucks of data that companies are likely to collect from remote servers and later access virtually.

Good showing

Cross Research analyst, Shannon Cross believes that the first quarter earnings are very good, both for the company and the new Microsoft CEO. This positive performance can effectively offset the investors’ earlier concern that its growth would actually slow down rather than go on an upswing. There was also the worry about other competitors and Amazon’s impact on the strategy of cloud computing.

Another thing that contributed to the increase in earnings is the company’s cessation of support for Windows XP, which was already 13 years old. Microsoft benefitted from the mass computer upgrade from several companies so that they could continue to receive support. This alone gave Microsoft a 4% increase in the revenue of Windows, which in turn allowed the company to offset the decline in the shipment of personal computers, based on the researches conducted by technology research firm Gartner and IDC, a market research firm.

At this stage, according to the general manager of investor relations of Microsoft, Chris Suh, it is still difficult to compute how much Microsoft actually gained from the computer upgrade. He said that there are still about 10% of all Windows computers that are still running on Windows XP, so the company is expecting to gain additional revenue from their upgrades, which can still take a long time to be done.

Going forward

Like most companies, Microsoft is also into acquiring other businesses. It is expected to close its $7.3 billion acquisition of the handset business of Nokia by Friday. Nokia said that the sales of their smartphone has gone down by 29% in the last quarter of 2013. Some analysts are saying that this acquisition might actually impact largely on the profit of Microsoft.

But not everything is rosy at Microsoft. Overall, its revenue for the first quarter of the year was flat. It was actually down by 6% compared to the first quarter earnings in 2013.

Image credit: Satya Nadella taken by OFFICIAL LEWEB PHOTOS under Public Domain.