Microsoft Q2 sales climb 17%, lifted by robust cloud demand

MICROSOFT Corp said fiscal second-quarter sales rose 17 per cent, a faster clip than analysts projected, thanks to buoyant demand for corporate cloud-computing services and software tools that support at-home workers.

Revenue in the period ended Dec 31, 2020 rose to US$43.1 billion, the Redmond, Washington-based software maker said on Tuesday in a statement. That exceeded the US$40.2 billion average estimate of analysts polled by Bloomberg, and marked Microsoft's 14th straight quarter of double-digit revenue growth. Net income was US$15.5 billion, or US$2.03 a share. Analysts had predicted US$1.64.

Growth in the company's Azure cloud-computing division jumped 50 per cent. Microsoft has benefited as many corporate clients have accelerated a shift to the cloud, where they can store data and run applications via the Internet, and as businesses set up work teams with online productivity tools and teleconferencing software. Personal-computer sales also surged in the quarter, boosting its flagship Windows operating-system business, while gaming revenue topped US$5 billion for the first time in a single quarter.

Sales in each of Microsoft's three divisions exceeded the average estimates of analysts polled by Bloomberg. Corporate versions of Office 365 cloud-based software saw revenue rise 21 per cent in the quarter, the company said. Seats - the number of licensed users - rose 15 per cent at corporations. Subscribers to the consumer version of Microsoft 365, which combines Office and Windows, increased 28 per cent to 47.5 million, chief financial officer Amy Hood said in an interview.

The pandemic caused some companies to speed up moves to the cloud and upgrades to Internet-based collaboration software. Even though the market is growing, Microsoft continues to face competition from Amazon.com's AWS and a renewed cloud-infrastructure push at Alphabet's Google. Azure's revenue gain in the recent quarter exceeded the 43 per cent growth rate predicted by analysts, and outpaced the prior period's increase of 48 per cent. It was a sign of recovery for some customers hurt by the pandemic, Ms Hood said.

"We really saw signs of recovery across industries, improvement in small and medium-sized businesses, and we obviously saw consumption that was better than we thought," she said.

Commercial cloud revenue rose 34 per cent to US$16.7 billion, the company said. The gross margin, a measure of profitability, for that business widened by 4 percentage points from a year earlier to 71 per cent.

Global PC shipments jumped 26 per cent in the December quarter, according to research firm IDC, with demand fuelled by the continued need to work and learn from home. Some of that strength may carry into 2021.

Microsoft's earnings report also provided a first look at sales of the new generation of Xbox game consoles, called the Series X and Series S, which hit stores in November and have been sold out ever since. Xbox content and services revenue jumped 40 per cent in the December quarter, Microsoft said, and Xbox hardware sales gained 86 per cent.

As more Xbox consoles become available, it will be clearer how the new machines are faring versus a rival pair of new PlayStations, which have also been in short supply after a November launch. Ms Hood said the company expects to see strong demand but limited supply in the March quarter.

The company's forecast for each of its three business units for the March quarter also exceeded analysts' projections. Productivity sales, mostly make up of Office software, will be as high as US$13.6 billion, Ms Hood forecast on a conference call after the report. That's above the US$12.9 billion average estimate of analysts polled by Bloomberg.

Intelligent cloud revenue, made up of Azure and server software, will be as much as US$14.95 billion, compared with a US$14.2 billion average estimate. Personal computing sales, including the Windows, Xbox and Surface businesses, may reach US$12.7 billion. Analysts polled by Bloomberg had expected US$11.5 billion on average. BLOOMBERG