Microsoft reported a sharp drop in profit for fiscal Q3 as performance in its cloud business, which it has touted as the next growth driver, couldn’t make up for the continued decline of its PC group.
The personal computer group, the company’s largest division, saw revenue rise just one per cent to $9.46 billion, with Windows OEM revenue falling two per cent in constant currency terms. While sales of its Surface tablet line jumped 61 per cent (constant currency) to $1.1 billion, revenue from its dwindling phone business dropped 46 per cent (to $662 million).
Microsoft sold just 2.3 million Lumia handsets last quarter, compared with 8.6 million sales during the same quarter a year ago, which means that Lumia sales have plummeted by 73 per cent year-over-year, and by 49 per cent compared with last quarter’s 4.5 million sales.
And sales of Microsoft’s non-Lumia handsets (low-cost feature phone range, inherited from Nokia) also declined, falling to 15.7 million last quarter, compared with 24.7 million a year ago.
“Phones continued their tail-spin, leaving the question with regards to what Microsoft will do with its consumer ecosystem wide open,” wrote Radio Free Mobile’s Richard Windsor in an analyst note.
The group’s operating profit, however, jumped 57 per cent year-on-year to $1.65 billion.
Revenue in its intelligence cloud unit, which includes the Azure cloud business and server software, rose three per cent to $6.1 billion. Azure revenue was up 120 per cent (constant currency), and it said enterprise mobility customers more than doubled year-on-year to 27,000.
The cloud group’s operating profit fell 14 per cent to $2.2 billion.
The productivity and business process group also posted one per cent revenue growth to $6.52 billion. Office commercial products and cloud services revenue grew seven per cent. The group’s operating profit was down seven per cent to $3 billion.
The company’s net profit for the quarter ending 31 March dropped 25 per cent to $3.76 billion from a year ago, with revenue falling 5.5 per cent to $20.53 billion.
Microsoft CEO Satya Nadella has been pushing what he calls a “mobile first, cloud first” strategy for the past two years.
The company said its “commercial cloud” business, which includes Azure and Office 365 applications for business customers, is on track to earn $10 billion a year with the goal of hitting $20 billion in fiscal year 2018.
Analysts suggest that it created the numbers for the “commercial cloud”, which is not the same as its “intelligent cloud”, to be able to compare itself to rival Amazon Web Services, which is the market leader in cloud services.