Cloud Lifts Microsoft First-Quarter Earnings, Layoffs Continue

Microsoft (MSFT) announced its first-quarter FY2016 earnings Oct. 22, reporting a 12 percent decline in revenue but a slight increase in earnings. Cloud computing was the only business showing an increase in revenue for the technology stalwart, coming in at 8 percent overall.

The company’s Productivity and Business Processes revenue declined 3 percent, despite Office commercial products and cloud services revenue growing 5 percent and Office 365 revenue growing almost 70 percent.

Additionally, More Personal Computing revenue declined 17 percent, with Windows OEM revenue declining 6 percent. Microsoft noted it performed better than the overall PC market, “as the Windows 10 launch spurred PC ecosystem innovation and helped drive hardware mix toward premium devices,” the company noted in its earnings statement.

Phone revenue declined 54 percent, which the company said is in line with its strategy.

“We’re seeing great traction with businesses who want to bring Microsoft’s cloud, mobile device management technology and data analytics together to improve security and productivity resulting in almost 70 percent year-over-year growth in our commercial cloud run rate,” said Kevin Turner, chief operating officer at Microsoft, in the release.

Indeed, Microsoft seems to be killing it in the cloud services space. Its cloud unit reported $5.9 billion in sales this quarter. Microsoft CEO Satya Nadella noted during the earnings call that sales of the Azure cloud-computing platform more than doubled to an annual run rate of $8.2 billion, and he predicted Microsoft would hit $20 billion in annual cloud sales by 2018.

Overall, Microsoft reported net income of $4.62 billion, or 57 cents a share, compared with $4.54 billion, or 54 cents a share, in the period a year ago. Revenue fell to $20.38 billion from $23.2 billion a year ago.

Just ahead of its earnings announcement, Microsoft laid off about 1,000 employees, or about 1 percent of its total workforce. The cuts were spread across the company and were in different geographical locations, according to an article in the New York Times.

In July, Microsoft laid off 7,800 employees, mostly as part of its phone hardware reorganization (think: Nokia), and last July laid off a whopping 18,000 employees in an effort to integrate the Nokia buy (think: former Nokia employees).

Obviously, cloud is the story here. Azure’s doing well, Office 365 revenue is more than healthy and it’s clear the company is hedging its bets on their continued success. All the more reason for solution providers to get into the cloud game.