Microsoft Sales Pass Street Estimates

Microsoft Corp reported quarterly revenue that was higher than had been expected, helped through stronger sales of Surface tablets, phones and products for cloud computing for businesses, while keeping profit margins for the most part intact.

The Thursday results put to ease investor fears of the past few days that the industry shift toward cloud services that are lower margin was proving hard to master for the technology leaders that are well established.

Shares of Microsoft were up 3% in trading after hours, and have increased by 33% over the last year.

One analyst said after the negative results in earnings from tech bellwethers IBM, Oracle, SAP, EMC and VMware, Microsoft bucked the trend and came through the quarter with a solid earnings report.

Investors were watching keenly Microsoft after SPA and IBM warned about operating profits, as they enter into the cloud where thinner margins than what technology companies are accustomed are commonplace.

Microsoft’s revenue that was cloud-based was not disclosed for its fiscal first quarter. However, the software giant said its sales in commercial cloud services were up 128%, while sales that were service based on its cloud platform Azure, rose by 121%.

Perhaps even more importantly gross profit margin (GPM) for the unit that has Azure was up 194%, despite increased infrastructure costs, which include the massive expense of constructing then operating datacenters.

Over the past four years, Microsoft’s GPM has drifted downward to 65% from more than 80%, in large part due to its move into the business of phone and tablets, which is less profitable, but accelerated by its move into the cloud.

One analyst predicts that Microsoft will hit revenue in the cloud of $6 billion per year soon, which would make it the largest cloud vendor in the industry.

However, that is only 6% of the company’s expected revenue during the fiscal year, but today’s investors are very sensitive to a business that is seen as the future.

Microsoft’s profit for the fiscal first quarter actually dropped 13% in large part due to the $1.1 billion charge that was expected for mass layoff that were announced this past July, which cut 1 cent a share from earnings.

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