Slower growth in Microsoft cloud business casts shadow over results

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By Noor Zainab Hussain and Stephen Nellis

(Reuters) – Microsoft Corp’s (O:) Azure cloud services grew more slowly in its first quarter even as profit and revenue beat estimates, the company said on Wednesday, a sign that competition is picking up in its fastest-growing business.

Revenue from Azure increased 59% in the quarter ended Sept. 30, but came in well below last year’s 76% growth.

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, in which customers move their computing work to data centers managed by Microsoft.

Strength in that business powered Microsoft’s market value past $1 trillion for the first time in April. However, the business faces intense competition from Inc’s (O:) AWS and Alphabet Inc’s (O:) Google.

Jefferies analyst 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.”

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. Amazon Web Services still dominates the market with a 31.5% share, followed by Microsoft with 18.1%.

Microsoft shares, up 34% for the year, were 0.25% lower at $136.90 in after-market trading.

The technology company’s personal computing division accounted for the largest share of its revenue, 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.

Net income rose 21% to $10.68 billion, or $1.38 per share, while total revenue rose 14% to $33.06 billion. (https:// Analysts had expected a profit of $1.25 per share on revenue of $32.23 billion, according to IBES data from Refinitiv.

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