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Bumper third quarter for Microsoft as Azure revenue grows 50% year on year

Cloud migration and winner-takes-all integration drive more coins into Redmond's pocket

Microsoft has reported a 19 per cent year-on-year revenue jump in Q3 financial results covering January to March 2021, driven by Azure and Microsoft 365 subscriptions.

The company made net income of $15.5bn, itself up more than 43 per cent, on revenue of $41.7bn, and returned $10bn to shareholders via stock repurchases and dividends.

Microsoft's group turnover was housed within three operating segments: Productivity and Business Processes (inc Microsoft 365, Dynamics, and LinkedIn) grew 15.4 per cent $13.552bn; Intelligent Cloud (inc server licences and Azure cloud) jumped 23.1 per cent to $15.118bn; and More Personal Computing (inc consumer Windows, Xbox, and Surface) was up 18.54 per cent to $13.03bn.

The most eye-catching figure was that Azure cloud revenue swelled 50 per cent, though it should be noted that Azure revenue is distinct from the licensing revenue for products that customers run on Azure. "Server products and cloud services revenue" was up by a mere 26 per cent, the company said.

CEO Satya Nadella gave an unusually detailed breakdown of some of Microsoft's percentage growth in the earnings call last night - though he didn't give absolute figures. SQL Server on Azure VMs was up 129 per cent year on year, he said – intriguing because these customers prefer to deploy like this rather than use the managed Azure SQL service. The non-relational and fully managed Cosmos DB also grew with "transaction volume" rising 170 per cent year on year, he said.

Nadella also picked out Azure Arc as significant: the ability to use Azure to control services running on-premises or on other cloud hosts, not just Kubernetes deployments but also data services and machine learning.

GitHub was growing apace in Q3 of Microsoft's fiscal 2021, Nadella reported, with "nearly 65 million developers" and a 70 per cent increase in active organisations using the service compared to a year ago.

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He also referenced Power Platform, the low-code application builder, workflow, and data analysis service, though rather than talking about citizen developers he described it as targeting "any domain expert." Power Platform now claims 16 million active users, up 97 per cent, and 84 per cent revenue growth.

Dynamics 365 was another growth area, which Nadella claimed saw a 45 per cent revenue increase and continues "to take share from competition." Back in on-premises days, Dynamics was not a highlight of Microsoft's product portfolio, being capable but notoriously fiddly to install and customise. Cloud-hosted Dynamics has fared better, partly because Microsoft takes responsibility for running it, but also because once an organisation is embedded in the 365 ecosystem the integration with Azure AD (Active Directory) and Office (and now Power Platform as well) becomes a benefit. Nadella, asked whether it was Dynamics ERP or CRM that was driving growth, said that it was both because customers are bringing together "some of the disparate CRM and ERP systems they may have."

If services like Office 365, Teams, and LinkedIn did not benefit from pandemic-enforced remote working, something would be badly wrong. Fortunately for Microsoft they did, with Teams now claiming 145 million daily active users, "almost double the number a year ago," according to Nadella, and LinkedIn traffic up and revenue increasing "more than 60 per cent year over year," now above $3bn annually.

Office 365 is up to "nearly 300 million paid seats." Of those, the company has persuaded over 300,000 or one per cent to pay extra for premium Azure AD for improved security. The company said it is, however, successfully upselling many customers to its cloudy device management services, enterprise mobility, and security, which grew 30 per cent to over 174 million seats.

The pandemic has also driven PC growth, as we noted here recently, which helped Windows 10 reach over 1.3 billion monthly active devices, Nadella said. Much of the growth was consumer: Windows non-pro revenue from PC vendors was up 44 per cent, but OEM Pro revenue down 2 per cent, mainly because the Windows 7 end of support bonanza has now fizzled.

More cloud revenue does mean less on-premises revenue in some areas. CFO Amy Hood noted that Office Commercial Licensing, which is non-cloud Office sales, was down 25 per cent as a side-effect of 365 migration. Despite Azure, though, on-premises server business was sustained, thanks to end of support for Server 2008. ®

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