1st-Quarter 2018 Earnings Validate Microsoft's Strengths

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One of the biggest successes was the growth of the firm's cloud computing efforts, with reported revenues of $6.9bn, up 13 per cent year-on-year, and set to exceed $20bn in annual run rate by the end of 2018's fiscal year, a target the company set for itself just over two years ago.

The engines of Microsoft's growth have been its Intelligent Cloud segment, which includes Azure, and its Productivity and Business Processes segment, which includes the Office franchise.

Microsoft said commercial cloud annualized revenue run rate reached $20.4 billion in the quarter.

Continued fast growth, combined with spending discipline, in these two areas are what Wall Street is looking for, said Daniel Ives, head of technology research at GBH Insights. Both these products have sizable customer bases, and the strong growth is a pure reflection of Microsoft's strengthening position in the SaaS as well as IaaS markets.

Microsoft's Azure revenue nearly doubled and posted 90 percent year over year growth.

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Microsoft didn't break out specific revenue figures for the devices, but noted that Surface revenue gained 12% in the quarter. After a decrease last quarter, Surface revenue actually increased by 12 percent year-over-year this time around, which is probably in large part due to the newly released Surface Laptop and Surface Pro. Microsoft expects to post revenue of between $27.8 billion and $28.6 billion for its fiscal second quarter.

Analysts had expected revenue of about $23.56 billion and earnings of 72 cents a share. Global PC shipments fell 3.6 percent in the period, according to Gartner Inc.

Microsoft's flying cloud business accounted for just shy of US$7bn of that, a 14% year-over-year rise. Revenue in Microsoft's More Personal Computing segment, which includes Windows as well as the mobile-phone and gaming businesses, stayed flat at about $9.4 billion. Analysts had estimated $8 billion. At that moment, Microsoft earned about $6.3 billion revenue, and the new CEO wanted to hit the $20 billion milestone in 2018.

During the current quarter, the launch of the new Xbox One X console, combined with higher device sales during the holiday season, will pressure margins, Hood said on the call. Windows OEM revenue went up by just four percent and commercial Windows and cloud services increased by seven percent.

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