Microsoft forecasts cloud sales above expectations

(Reuters) - Microsoft Corp MSFT.O on Wednesday forecast sales for its cloud computing services that topped analysts' estimates, even as quarterly growth slows for its Azure business.

FILE PHOTO: An employee uses an augmented reality headset at Microsoft's new Oxford Circus store ahead of its opening in London, Britain July 9, 2019. REUTERS/Simon Dawson

Microsoft said it expected “intelligent cloud” revenue of $11.25 billion to $11.45 billion for its fiscal second quarter, above analysts’ consensus of $11.2 billion, IBES data from Refinitiv showed.

Revenue from Azure grew 59% in the fiscal first quarter ended Sept. 30, well below the 76% in the year-ago period and slightly short of analysts’ estimates.

Microsoft also expects “double-digit” percentage growth in both revenue and operating income for its fiscal 2020, company executives said on a conference call.

“The guidance is strong,” said Mark Moerdler, managing director of global software and senior analyst with Bernstein. “There were a number of people surprised that their numbers were so good for the full year.”

The results sent Microsoft shares, which were up 34% for the year before the report, up 0.45% to $137.86 in after-market trading.

Since Chief Executive Satya Nadella took over in 2014, Microsoft has been diversifying from its Windows operating system software, and has focused on its cloud services, which allow customers to move their computing work to data centers managed by Microsoft.

Worldwide spending on cloud infrastructure services grew nearly 38% year-on-year in the calendar second quarter to $26.3 billion, according to data from research firm Canalys. Inc's AMZN.O Amazon Web Services still dominates the market with a 31.5% share, followed by Microsoft with 18.1%.

Strength in the cloud business powered Microsoft's market value past $1 trillion for the first time in April. However, the business faces intense competition from Inc's AMZN.O AWS and Alphabet Inc's GOOGL.O Google.

Microsoft beat Wall Street expectations for its overall revenue and its intelligent cloud segment, which contains Azure, marking $33.1 billion in overall sales and cloud unit sales of $10.8 billion.

Jefferies analyst Brent Thill said Microsoft’s results “were strong across the board with nearly all key metrics beating consensus.”

But Azure was the key metric that missed slightly, said Daniel Morgan, a senior portfolio manager at Synovus Trust Company.

“Azure came in at 59% (revenue growth) and consensus was at 60%,” he said. “Other than that, it was a good quarter, but if you want to throw rocks at it, that is how you would do it.”

Interactive graphic on Microsoft's cloud unit:

Microsoft also beat expectations in other segments. It forecast sales from a division that includes LinkedIn and Office software to range from $11.3 billion to $11.5 billion, in line with analysts’ consensus estimate of $11.4 billion.

The technology company’s personal computing division accounted for the largest share of its first-quarter revenue posted on Wednesday, rising 4% to $11.13 billion. The unit includes Windows software, Xbox gaming consoles, online search advertising and Surface personal computers.

Windows results were boosted by 19% revenue growth for business computers, which was offset by a 7% decline for consumer PCs.

Mike Spencer, head of investor relations for Microsoft, said Google Chromebooks continued eat into Windows revenue for entry-level laptops.

But Microsoft forecast current-quarter revenue of $12.6 billion to $13 billion for the personal computing division, below analysts’ consensus estimate of $13.38 billion.

Net income rose 21% to $10.68 billion, or $1.38 per share, while total revenue rose 14% to $33.06 billion. (

Analysts had expected a profit of $1.25 per share on revenue of $32.23 billion, according to IBES data from Refinitiv.

Reporting by Noor Zainab Hussain in Bengaluru and Stephen Nellis in San Francisco; Editing by Saumyadeb Chakrabarty and Richard Chang