All eyes on Microsoft Azure and the cloud in the first quarter of fiscal 2013

Microsoft

Credit: ZDNET

More than half Microsoft’s $50.1 billion ($25.7 billion) of revenue for the first quarter of fiscal year 23 came from “Microsoft Cloud.” But Wall Street wasn’t satisfied with Azure’s 35 percent, year-over-year growth for the quarter, nor with expectations that Azure’s revenue would drop five points sequentially in the second quarter.

(Microsoft Cloud, formerly Microsoft Commercial Cloud, is a suite of company-created services that includes Microsoft 365 / Office 365, Azure, Dynamics, some LinkedIn services, and other business-focused clouds.)

But Azure and Microsoft Cloud look good compared to what’s going on in the “personal computing” section – Windows, Xbox, games, and search/advertising. Windows OEM revenue fell 15 percent in the quarter. And for the second quarter, Chief Financial Officer Amy Hood said he expects Windows licensing revenue to fall further — in the 30 percent high range — especially given the comparable strong prior year. It said hardware revenue will also fall by about 30 percent in the next quarter, in line with the PC market.

Officials said $800 million in projected increased energy costs for fiscal year 23 contributed to a 14 percent drop in net income, to $17.6 billion, or $2.35 per share, and reduced Azure margins. But inflation and a strong dollar have played a major role in the decline, given that Microsoft generates nearly half of its revenue from overseas sales.

Hood emphasized that Microsoft continues to award large, long-term deals to Azure. Microsoft 365 / Office 365 Dynamics sales were strong in the quarter. The most expensive and feature-rich Microsoft 365 plan, E5, accounted for 12 percent of the total mix in the last quarter. Microsoft didn’t provide an update on E5 growth, other than to say that more than half of the more than $10 million Microsoft 365 bookings in the quarter came from E5. Hood said Microsoft is adding more functionality to its E3 SKU, but the company needs to do a better job of getting the value of E3.

“In this environment, it is more important than ever to continue investing in our strategic growth markets such as cloud, security, teams, Dynamics 365 and LinkedIn as we have opportunities to continue gaining engagement while delivering innovations to solve problems for our customers,” Hood said.

Some other stats Microsoft released during the Q1 FY’23 call are worth noting:

  • The company says it has 8,500 customers running its hybrid Azure Arc, which is double the number a year ago.
  • GibHub now generates $1 billion in annual recurring revenueFour years after Microsoft acquired the company. Microsoft says that more than 90 million developers use the service.
  • Power Apps has nearly 15 million monthly active users, a 50 percent increase from last year. Microsoft says Power Automate has more than 7 million monthly active users.
  • Microsoft Viva has more than 20 million monthly active users.
  • Netflix will launch a file Ad-supported subscription plan for November, powered by Microsoft’s advertising platform.
  • PC Game Pass subscriptions are up 159% year over year, and Xbox revenue is up 13%. Xbox content and services are down three percent.
  • Headcount growth from the first quarter to the second quarter will be minimal, with plans in place to move people to focus on the company’s highest priorities.

Made by Microsoft Some adjustments to the revenue reporting method for September. Revenue from HoloLens is now in the personal computing segment, not the smart cloud segment, reflecting the reorganization that has seen The HoloLens team is divided into two parts. Microsoft has also added PC accessories, along with HoloLens, to its Surface revenue growth metric, now known as “hardware revenue growth.” GitHub cloud revenue has been removed from server products to Azure and is now counted towards the “Microsoft Cloud” total. Windows 365 revenue is now part of Azure instead of Windows Commercial.

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