Microsoft Earnings Jump Aided by Cloud-Computing Demand During Pandemic -- 2nd Update
April 29 2020 - 5:29PM
Dow Jones News
By Aaron Tilley
Microsoft Corp. posted higher third-quarter earnings propelled
by strength in its cloud-computing business with some of its
operations getting an extra boost from the coronavirus pandemic
that has forced many day-to-day activities online.
The world's most valuable public company showed it was largely
immune to any immediate ill effects from the pandemic even as many
U.S. companies have reported falling earnings and pulled their
full-year outlook because of economic uncertainty from the health
crisis.
The software giant on Wednesday reported earnings per share of
$1.40 for the quarter ended March 31, up from $1.14 for the
prior-year period. Sales, Microsoft said, rose 15% in the first
three months of the year to $35 billion. "Covid-19 had minimal net
impact on the total company revenue," Microsoft said. Analysts
surveyed by FactSet expected $1.28 of per-share earnings and sales
of $33.76 billion for the quarter.
A big boost came from Microsoft's Azure cloud business, which
the Redmond, Wash., company said propelled sales up 59% in the
quarter. Cloud-computing, already an earnings driver before the
pandemic, has become more central for many Microsoft customers as
they have moved to support employees working remotely amid a boom
in online activity with people sheltering at home.
"We've seen two years' worth of digital transformation in two
months," Microsoft Chief Executive Satya Nadella said in a
statement.
Microsoft's stock rose more than 4% in after-market trading.
Revenue from the company's commercial cloud operations, which
reflects both its Azure cloud business as well as cloud-based
applications, grew 39% to $13.3 billion -- a new record.
In February, the looming pandemic caused Microsoft to warn of
supply chain disruptions that were expected to cause first-quarter
sales in its personal-computing business -- which includes
licensing revenue from PC sales, the Xbox gaming platform and
Surface laptops -- to fall short of the previous revenue forecast
of $10.75 billion to $11.15 billion.
The PC group, Microsoft said Wednesday, generated sales of $11
billion as demand to support remote work and teaching offset some
of the supply chain issues. The gaming business benefited from
people staying at home, with Xbox sales increasing 2% in the
quarter, an improvement from the 11% drop in the previous
three-month period. Surface laptop sales rose 1% as demand from
people rushing to buy devices to work remotely outpaced supply
chain issues.
Microsoft also said that the supply chain constraints it had
seen improved later in the quarter. "Factories came back to more
normal operations at a faster pace than we expected," said Jonathan
Neilson, a finance director with Microsoft's investor relations
team.
Microsoft's other two main business areas saw sales grow from
the year-ago period. Its intelligent cloud segment, which includes
its Azure product line, booked revenue of $12.3 billion, up 21%.
The company's productivity and business process division, which
includes LinkedIn, sales-management software Dynamics and
commercial subscriptions to the Office 360 product suite, had $11.7
billion in sales, up 15% from the same quarter a year ago.
Although demand for the cloud has been growing rapidly during
the pandemic, Microsoft has faced some capacity issues dealing with
the increased usage. Microsoft also said it had to slow some of its
cloud infrastructure spending because of the supplier constraints
in China.
Another challenge for Microsoft is maintaining its
cloud-computing momentum. Although remote working and people stuck
at home are increasing the appetite for tools that run on the
cloud, a broader economic downturn could dent spending plans for
some companies forced to cut costs. Microsoft said that in the
final weeks of the quarter there was a slowdown in finalizing some
licenses, particularly involving smaller and medium-sized
businesses, many of which have been hit hard by the economic
effects of the pandemic.
Microsoft's business social-media network LinkedIn also felt the
effect from the spending slowdown toward the end of the quarter
with reduced advertising spending, the company said, though revenue
over the full quarter rose 21% from a year earlier.
Write to Aaron Tilley at aaron.tilley@wsj.com
(END) Dow Jones Newswires
April 29, 2020 18:14 ET (22:14 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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