At Microsoft, The Cloud Truly Does Come First


Cloud first, mobile last.

See also: What Microsoft’s Fiercest Critics Forget: Azure

That’s about how you can sum up Microsoft’s earnings for the last quarter. Microsoft’s cloud revenue is on a steady trajectory up—$4.4 billion in the last year—as it rolls out Office 365 and Azure services to its core customers. Azure is probably the most potent weapon in Microsoft’s current arsenal, and will be the backbone of almost everything it does going forward.

Mobile is a different story. Microsoft officially completed the acquisition of Nokia in the quarter on April 25. The hardware division of Microsoft, which includes the new Nokia division, added $1.99 billion in revenue to Microsoft’s coffers, while posting $692 billion in operating income losses.

“Our results reflect our customers’ long-term commitments to our products and services, and strong execution by our field teams. We are thrilled with the tremendous momentum of our cloud offerings with Office 365 and Azure both growing over 100% again,” Microsoft chief operating officer Kevin Turner said in the earnings release.

The Productivity Company

CEO Satya Nadella has shifted Microsoft’s focus in the past week or two. Its latest iteration makes it a “platform and productivity” company with Azure at the center.

See also: Satya Nadella Proves That Microsoft Hasn’t Changed At All

“I’m proud that our aggressive move to the cloud is paying off—our commercial cloud revenue doubled again this year to a $4.4 billion annual run rate,” Nadella said in the earnings release.

Microsoft is in a bitter fight with major rivals like Apple, Google and Amazon over the Holy Grail of technology: devices, developers and cloud. The company is excelling in the cloud area, growing Azure and Windows 365 to become the core of its future. Meanwhile, it continues to show minimal growth in the area of devices, especially smartphones.

Compare the headlines for the earning results (“Microsoft Cloud Growth Drives Strong Fourth-Quarter Results”) to last week’s announcement of layoffs that cut 12,500 people from its recently acquired smartphone manufacturing business in Nokia.

Whenever Nadella talks about the current technological landscape in which Microsoft competes, he always says “mobile first, cloud first.” Yet the cloud and productivity tools like Office 365 will always come first at Microsoft. Increasingly, devices are something that Microsoft essentially has to write off on its balance sheet, like the $692 in operating expenses for Nokia in the last quarter or the $900 million hit that Microsoft took for extra Surface RT inventory last year.

Even Microsoft’s bread and butter wasn’t delivering. Windows-licensing revenue grew 3% in the quarter, with 11% growth for Windows Pro. Windows is not a loss for Microsoft at this point, but it’s sure not close to growing the way the company’s cloud and productivity services are.

Lead image by Owen Thomas for ReadWrite

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