Tencent technology news on October 27, the cloud based software business of U.S. software giant Microsoft helped promote strong quarterly revenue and profit growth, exceeding analysts’ expectations for the 11th consecutive quarter. In the first quarter of fiscal year 2022, Microsoft reported that its revenue was $45.3 billion and its net profit reached $20.5 billion, an increase of 22% and 48% respectively year-on-year. Among them, Microsoft cloud, server and office business performed particularly strongly in the quarter.
Microsoft said that the company’s revenue growth in the first quarter ushered in the fastest growth rate since 2018. Novel coronavirus pneumonia epidemic since last year has also exceeded the expectations of Wall Street, including the trend of new crown pneumonia since last year, which has led more enterprises to turn to hybrid office mode, and more users prefer home entertainment, and push the demand for cloud computing services and game machines to surge sharply.
In the first quarter, the revenue of 13 of Microsoft’s 14 product categories increased year-on-year. The only laggard is Microsoft’s consumer hardware division surface, whose revenue fell by 17%. The global chip shortage may be one reason.
More personal computing business units
The revenue of more personal computing business units, including windows, devices, games and search advertising, was $13.31 billion, an increase of 12% compared with the same period last year, exceeding the average analyst expectation of $12.72 billion.
Microsoft released windows 11 earlier this month, but in the months before the release of the new version of windows, PC sales in the United States began to decline due to supply problems. However, this does not seem to affect the revenue of Microsoft Windows. The revenue of windows OEM (original equipment manufacturer) increased by 10% year-on-year, although Microsoft said that “the continuous demand for personal computers is affected by supply chain constraints”.
Thanks to the surge in demand for Microsoft 365, windows commercial products and cloud services revenue also increased by 12%. Earlier this month, windows 11 was just launched on new devices, so Microsoft and OEMs will hope that the supply problem will improve and that the new operating system will promote more demand for laptops and personal computers.
Satya NADELLA, chief executive of Microsoft, believes that the personal computer is the key at present. Computer computer novel coronavirus pneumonia will be more critical than ever before. “There is a structural change in demand for PC during the new crown pneumonia epidemic,” he said. Microsoft now expects Windows OEM revenue to grow in the second quarter.
In terms of surface, Microsoft has now entered the second quarter of the launch of surface laptop 4 and surface Pro 7 plus, which is an important part of Microsoft’s surface revenue. In the first quarter, surface revenue fell 17%, which Microsoft said was related to its strong performance in the same period last year.
Surface’s revenue does not seem to improve in the next quarter. Amy hood, Microsoft’s chief financial officer, warned that Microsoft’s outlook for the second quarter, including surface revenue, is expected to fall to “single digits”. Microsoft seems to feel the impact of the supply of PC components.
In the first quarter, Microsoft launched a new surface PC, said it was acquiring security startups cloudknox and riskiq, and announced plans to increase the cost of commercial office 365 subscriptions. The company also hired Charlie bell, a former executive of Amazon’s cloud computing business, to work on network security and promised to invest more money in security research and development.
Microsoft Xbox series X and series s game consoles have been on the market for nearly a year. Xbox’s hardware revenue has been increasing in recent months. Due to the continuous demand for Xbox series X and series s game consoles, Microsoft’s hardware revenue increased by 166% in the first quarter.
Hood said that Microsoft’s shipments still exceeded expectations when Xbox series X and s game consoles continued to be in short supply. It is unclear whether this better than expected game console supply will continue into the second fiscal quarter. The chief executive of Microsoft Xbox has warned that the supply limit will continue until 2022.
Microsoft’s overall game revenue also increased by 16%, close to $3.6 billion, but Xbox content and service revenue increased by only 2%. Microsoft said that the subscription volume of Xbox game pass had increased, but the company did not announce the new subscription volume. The last public disclosure was the data in January 2021, which showed that the subscription of Xbox game pass was 18 million.
Once Forza horizon 5 and halo infinite have an impact on the number of subscribers, we can update the subscription number of Xbox game pass. Hood said that due to the continuous release of Xbox game pass, Microsoft expects Xbox content and service revenue to grow by double digits in the second fiscal quarter.
Intelligent Cloud Department
NADELLA helped the company reach a series of stable transactions with azure, which stores data and runs applications, thus expanding the company’s success in the field of cloud computing. As Microsoft persuades customers to buy high-end version services and expand contracts, Internet-based Office programs are also growing.
Microsoft said that the revenue of the intelligent cloud department, including azure public cloud, enterprise services, GitHub, SQL server, system center, visual studio and windows server, was $17 billion, a year-on-year increase of 31%, exceeding the average expectation of analysts of $16.58 billion.
As always, the growth of cloud computing business has had a profound impact on Microsoft’s revenue, especially when enterprises adapt to the mixed working mode. Among them, the revenue of azure and other cloud services increased by 50%, exceeding the average expectation of analysts by 47.5%.
Azure growth rate is the most intuitive and reliable measure when compared with competitors such as Amazon AWS and Google cloud, which is stronger than Microsoft’s previous prediction. Hood once said that the growth rate of azure calculated at a fixed exchange rate should be relatively stable. In the first quarter, azure grew at a fixed exchange rate of 48%, higher than 45% in the previous quarter.
Mr Hood said: “Microsoft’s cloud business had a strong start this fiscal year, with revenue of US $20.7 billion in the first fiscal quarter, a year-on-year increase of 36%. In the second fiscal quarter, we expect azure consumer business to grow healthily and widely, consistent with the recent trend and our user business, and continue to benefit from the momentum of Microsoft 365. However, given the size of the installation base, the growth rate will slow down.”
Microsoft azure faces fierce competition from market leader Amazon AWS and Google cloud, which ranks third. Although azure revenue has been growing at a rate of more than 40% per quarter, investors may be disappointed when these growth slows down in some periods.
Productivity and business processes
The revenue of productivity and business process departments including dynamics, LinkedIn and office was $15.04 billion, a year-on-year increase of 22%, exceeding the average analyst expectation of $14.67 billion.
Office’s quarterly performance was very strong. The revenue of office consumer products and cloud services increased by 10%, and the total number of Microsoft 365 consumer subscribers increased by 19%, reaching 54.1 million. Microsoft’s business office and related cloud services revenue also increased by 18% over the same period last year, and the business revenue of office 365 increased by 23%.
The revenue of smaller businesses such as Microsoft Windows software, teams messaging service and LinkedIn workplace social platform also exceeded analysts’ expectations. Among them, LinkedIn revenue increased by 42% to $3.14 billion. Microsoft said that this result was driven by the 61% growth of LinkedIn marketing solution business, which was used by the company to generate sales leads, website traffic and sales.
Although Microsoft’s three core business segments still maintain a good balance in revenue, the smart cloud business is gradually pulling away. The productivity and business process departments account for about 33% of Microsoft’s revenue, the smart cloud department accounts for about 38% of Microsoft’s revenue, and more personal computing business departments account for 29% of Microsoft’s total revenue.
In terms of guidance, Microsoft expects revenue in the second quarter to be $50.15 billion to $51.05 billion, exceeding the $48.92 billion agreed by analysts in the refinitiv survey.
After the announcement of the financial report, Microsoft’s share price rose about 1% to US $310.11 in after hours trading in New York. Microsoft’s share price has risen 39% so far in 2021, and the S & P 500 index has risen about 22% in the same period. (reviewed by Tencent technology / Jinlu)