Microsoft’s Earnings Report Underscores Nascent Success Of Nadella’s Cloud-First Strategy

The key point about Microsoft’s earnings call from last week lies neither in the impressive numbers about growth in operating income and net income or earnings per share, but in the preliminary success of Nadella’s strategy to re-focus Microsoft around cloud technologies and cloud services. The earnings report revealed that revenue from intelligent cloud grew 5% to $6.3B with growth of 10% in cloud services revenue and products related to servers. Azure revenue increased by 140% in conjunction with a threefold growth of Azure premium services revenue, year over year. More than a third of Fortune 500 customers now use Microsoft’s Enterprise Mobility suite, which reported year over year growth by a factor of three. To put things in perspective, Intelligent cloud revenue of $6.3B comes close to the $6.7B in revenue that the company reported for Productivity and Business Processes spanning Office 365 and Dynamics revenue. Meanwhile, Microsoft’s annualized revenue run rate is now greater than $9.4B and well on track to achieve the company’s target of $20B. The company’s cloud revenue run rate of $9.4B represents a brisk increase from the $8.2B figure disclosed at its previous earnings call for the quarter ending October 31, 2015. Windows 10 now runs on more than 200 million devices, a sharp increase from the previous quarter that had reported Windows 10 usage on 110 million devices. All this means that, in the space of two years, Nadella has transformed a sluggish company that seemed to be reaching the end of its life span as a tech behemoth qua dinosaur into a company bursting with life, creativity, energy and ideas. The unified simplicity of Nadella’s cloud-first mission has caught the eye of investors and positioned the company to go head to head with Amazon Web Services for ownership of the enterprise cloud services space and cloud market share more generally. Expect more innovation to burst out of Microsoft in upcoming months as it builds on its release of the Azure Stack, consolidates on its release of Windows 10 and continues to catch the attention of the enterprise and consumers alike.

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