October 22, 2015 / 8:19 PM / in 2 years

Cloud services bolster Microsoft results, shares soar

(Reuters) - Microsoft Corp (MSFT.O) reported better-than-expected quarterly adjusted revenue for the ninth quarter in a row, boosted by burgeoning demand for its cloud products, sending its shares soaring in after-hours trading on Thursday.

An electronic Microsoft logo is seen at the Microsoft store in New York City, July 28, 2015. REUTERS/Mike Segar

The company, under Chief Executive Satya Nadella, has been shifting its focus to software and cloud services as demand for the Windows operating system slows in a weak PC market.

“The Nadella strategy is working and you are seeing the results in the quarter,” Bernstein analyst Mark Moerdler said.

Microsoft’s shares rose as much as 9.8 percent to $52.75 in after-hours trading, their highest since March 2000.

Microsoft has also been cutting costs and streamlining its operations to focus on more lucrative businesses.

In the latest cost-cutting exercise, 1,000 jobs, or about 1 percent of Microsoft’s workforce, are being eliminated.

“The job reductions were spread across more than one business area and country and reflect adaptations to business needs,” a spokeswoman said in an email. The cuts are in addition to the 7,800 jobs Microsoft said it would cut in July.

The first-quarter results announced on Thursday were the first under a new reporting structure that reduced reporting segments to three from six, designed to help the software giant show off its cloud and mobile businesses.

Revenue from Microsoft’s cloud business, which includes products such as Windows Server and cloud-based platforms such as Azure, rose 8 percent to $5.9 billion and is expected to reach $6.2-$6.3 billion in the current quarter.

Excluding the impact of the strong dollar, revenue in the business rose 14 percent, accounting for about 29 percent of overall revenue in the quarter ended Sept. 30.

“It is a really strong quarter and these guys are ahead of most of the traditional software companies moving to the cloud in terms of where they are in the evolution,” Moerdler said.

Strong growth in cloud services also helped Amazon.com Inc (AMZN.O) report a surprise profit on Thursday.

WINDOWS TEST TO COME

The results were the first to include Windows 10, Microsoft’s first new operating system in almost three years. The system, seen as critical for the company, has won positive reviews for its user-friendly and feature-packed interface.

Sales of Windows to computer makers fell 6 percent in the quarter - slowing from the double-digit declines seen in recent quarters. Research firm Gartner said PC shipments declined 7.7 percent in the quarter.

The big test for Windows will be in coming quarters as Microsoft rolls out its latest devices, including its first laptop, a revamped Surface Pro tablet and new Lumia phones.

All run on Windows 10.

Revenue in the business that includes Windows, fell 17 percent to $9.4 billion, accounting for 46 percent of total revenue, and is forecast to hit $12.0-$12.4 billion in the current quarter.

Excluding the impact of the strong dollar, revenue in the business fell 13 percent in the latest quarter.

Microsoft got about 54 percent of its revenue from outside the United States in fiscal 2015.

The company's net income rose to $4.62 billion, or 57 cents per share, in the quarter, from $4.54 billion, or 54 cents per share, a year earlier. (bit.ly/1hXThU2)

Excluding items, the company earned 67 cents per share, beating most analyst estimates.

Adjusted revenue fell 6.6 percent to $21.66 billion. Analysts on average were expecting revenue of $21.03 billion, according to Thomson Reuters I/B/E/S.

(This story has been refiled to add dropped letter “s” in first paragraph)

Reporting by Devika Krishna Kumar and Arathy S Nair in Bengaluru; Editing by Savio D'Souza and Ted Kerr

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