M+E Connections

Strong performance in Microsoft’s Intelligent Cloud business again provided a boost for the company’s results in the fourth quarter (ended June 30) as a 51 percent year-over-year increase in Azure revenue drove a 34 percent increase in server products and cloud services revenue, the company said July 27.

Intelligent Cloud revenue grew 30 percent from a year ago to $17.4 billion, while operating income in that business increased to $7.8 billion from $5.3 billion.

In an earnings call with analysts, Microsoft CEO Satya Nadella said: “We had a very strong close to our fiscal year. Our commercial cloud surpassed $69 billion in annual revenue, up 34 percent.” The company is “seeing revenue growth across industries, customer segments and geographies, with over 50 percent of sales coming from outside” the U.S., he noted.

The 51 percent Azure revenue growth was “driven by strong performance across our core and premium consumption-based services,” according to Microsoft CFO Amy Hood.

In Microsoft’s commercial business, “healthy demand for our differentiated hybrid and cloud offerings, as well as increased long-term commitments to our platform, drove significant growth in the number of $10 million-plus Azure and Microsoft 365 contracts,” she told analysts.

In gaming, Microsoft “again saw strong engagement across our platform, while demand for our Xbox Series X and S consoles continued to exceed supply,” Hood said. Gaming revenue increased 11 percent from a year ago, with Xbox hardware revenue soaring 172 percent, “driven by demand for our new consoles,” she pointed out.

Total Microsoft Q4 revenue grew 21 percent from a year ago to $46.2 billion. Profit grew 47 percent to $16.5 billion, with earnings per share up 49 percent to $2.17.

Discussing Microsoft’s continued Azure innovation, Nadella said: “We are taking cloud compute to the edge with 5G deployments. Our new Azure edge services help operators and enterprises deliver ultra-low latency compute fabric. And we’re also helping operators run their networks in the cloud. AT&T chose Azure to power its 5G core network, making it the first Tier 1 operator to move its existing customer traffic to the public cloud.”

Microsoft is also “expanding our opportunity in hybrid,” he said, explaining: “Today, over 75 percent of the Fortune 500 use our hybrid offerings. Azure Arc extends the Azure control plane across on-premises, multi cloud, and the edge. With Arc, customers like EY and Telstra can manage their Kubernetes deployments anywhere, and deploy Azure SQL databases and run Azure applications services on any infrastructure.”

Meanwhile, “as the digital and physical worlds converge, we are leading in a new layer of the infrastructure stack: the enterprise metaverse,” he noted. “AB InBev is using our solutions – including Azure Digital Twins and Azure IoT – to optimize operations from the barley field, to the warehouse, to distribution.”

Azure continued to score additional client wins as “thousands of enterprises have migrated their ERP workloads to Azure, including Campbell Soup, L’Oréal, Mondelez International, ServiceNow, and even SAP,” he said. “All this innovation is driving larger and more strategic Azure commitments from industry leaders, including Mars in consumer goods, Morgan Stanley in financial services, and NEC in IT.”

Looking ahead to Q1 results, “in Azure, revenue will be driven by continued strong growth in our consumption-based business,” Hood told analysts. She added: “Our per-user business should continue to benefit from Microsoft 365 suite momentum, though we expect some moderation in growth rate given the size of the installed base. Therefore, in constant currency, Azure revenue growth should remain relatively stable on a sequential basis.”

In gaming, Microsoft expects to report “revenue growth in the low double-digits” in Q1, she said, predicting: “Console growth will again be constrained by supply. And on a strong prior year comparable, Xbox content and services revenue should grow low single digits.”