Behind Net Profit Growth Of 21% In The First Quarter Of Microsoft: Azure Revenue Growth Declined For Eight Consecutive Quarters

Microsoft's earnings once again exceeded the industry's expectations.

Beijing time on October 24th, U.S. stocks closed Wednesday, Microsoft announced the first quarter of fiscal year 2020 as of September 30th. Earnings showed that Microsoft's revenue in the quarter was $33 billion 100 million, an increase of 14% over the previous fiscal year, exceeding the average estimate of $32 billion 230 million by Wall Street analysts. Net profit was $10 billion 700 million, an increase of 21% over the same period last year. Earnings per share were $1.38, far exceeding analysts' expectations of $1.24.

In terms of operating revenue, Microsoft's operating income increased by 27% in the quarter, up to $12 billion 700 million. In the quarter, Microsoft returned $7 billion 900 million to shareholders in the form of share buybacks and dividends, representing an increase of 28% over the same period in the 2019 fiscal year.

However, behind the expected earnings report, there are also worries. According to the twenty-first Century economic report reporter combing, driving Microsoft's bright eye earnings important power Azure Intelligent Cloud business, its revenue growth has declined for the eight consecutive quarter. Compared with 76% growth in the same period last year, this figure is only 59% this year.

After Wednesday, Microsoft shares rose slightly by 0.64%. As of press time, Microsoft's sales rose by 1.1%.

Azure revenue growth slowed

In this quarter, Microsoft's performance varies.

By sector, Microsoft's productivity and business process revenue increased to $11 billion 100 million in the quarter, an increase of 13%. Among them, the commercial grade Office 365 revenue grew by 25%, and commercial grade Office products and cloud services revenue grew 13%. Consumer grade Office products and cloud services revenue grew 5%, consumer level Office 365 subscribers grew to 35 million 600 thousand subscribers. Revenue rose 25%, Dynamics 365 revenue increased 41%, Dynamics products and cloud services revenue grew 14%.

Microsoft Intelligent Cloud business performance eye-catching, revenue reached 10 billion 800 million U.S. dollars, an increase of 27% over the same period. Among them, thanks to Azure revenue growth of 59%, server products and cloud services revenue grew by 30%, enterprise class revenue increased 7%.

It is worth mentioning that, although the Azure revenue in the fiscal season has maintained a relatively high growth rate, this growth rate continues to show a gradual slowdown. According to the twenty-first Century economic report reporter combing, the current Microsoft Azure revenue has been declining for 8 consecutive quarters (including flat), the same period last fiscal year Azure revenue growth of 76%.

In this regard, Microsoft said that despite the slowdown in Azure revenue growth, gross profit margins have been substantially improved, and commercial cloud profit margins have increased by 4 percentage points to 66%. "The outstanding performance in the first quarter is a strong start for this fiscal year. In the quarter, Microsoft business cloud business revenue grew by 36% over the same period, reaching $11 billion 600 million in revenue. Amy Hood, executive vice president and chief financial officer of Microsoft, said Amy Hood.

In terms of more personalized computing business, Microsoft's revenue in the fiscal quarter reached $11 billion 100 million, an increase of 4%. Among them, Windows OEM revenue growth of 9%, Windows commercial products and cloud services revenue growth of 26%, excluding traffic import costs, including search engine advertising business revenue growth of 11%, Xbox content and service revenue remained unchanged.

As Microsoft did not release new Surface products in the quarter, Surface business revenue fell by 4%. Microsoft explained this as "product life cycle transition". Microsoft released a series of products including Surface Pro 7 and Surface Laptop 3 in the second quarter, and expects the performance of Surface business in the next quarter will resume.

In addition, Microsoft's revenue in gaming declined by 7%, and its revenue fell 10% in the first quarter. Some analysts pointed out that this stems from Microsoft's change of Xbox's revenue pattern. At present, Microsoft will pay more attention to Xbox Live and Xbox Game Pass.

In the next quarter's earnings outlook, Microsoft expects the next quarter's productivity and business process revenue to be between $113 and $11 billion 500 million, and Intelligent Cloud business revenue is between $112.5 and $11 billion 450 million, and Azure business revenue is expected to continue to grow at a high rate. The more personalized computing business will be between $126 and $13 billion.

Scrimmage hybrid cloud

The slowdown in Azure revenue growth is not an isolated case. In fact, Amazon AWS cloud services earned a net income of $8 billion 381 million in the second quarter, up 36% from the same period last year, but lower than the 41% in the previous quarter and 49% in the same period last year.

This means that the market capacity of the rapidly growing cloud computing market will be saturated. And more and more cloud computing insides, and the growing ambition of all, have intensified the competition in this market. Whether Amazon, Google, or Alibaba, Tencent, HUAWEI, etc., all major technology giants hope to have a share in the cloud computing market.

Physical space is only one of them. Players are also struggling to find new cloud computing subdivision battlefields - hybrid cloud becomes an option.

According to Gartner, by 2020, 90% of enterprises will use hybrid cloud management infrastructure. In recent years, the world's three largest cloud giants (AWS, Microsoft, Google) have been taking frequent actions in hybrid cloud business.

Among them, Microsoft is the three largest cloud giant in the earliest layout of mixed cloud business. Data show that in the mixed cloud market, Microsoft launched the Azure Stack hybrid cloud solution, Azure flexibility and fast paced technology innovation, applicable to the hybrid cloud environment. Benefiting from synergy, Azure is the only cloud that has unlimited data and analysis functions in the entire data area of the customer.

Tianfeng securities research team believes that Microsoft has built up its own advantages because of the early start of the hybrid cloud business, and is now in the virtuous circle from the reserve of sales capability to the complete deployment of SPI.

AWS, a leader in cloud computing, has also started to plan. Although AWS CTO Werner Vogels has previously called the private cloud a false proposition, it seems that the company has not escaped from the "true fragrance law" and has released Outpost, which is essentially a mixed cloud.

IBM is no exception. In July, IBM smashed $34 billion to acquire the world's largest open source cloud platform company Red Hat, to build the world's number one hybrid cloud provider. In an interview with the twenty-first Century business reporter in October 24th, Hou Miao, vice president of IBM and general manager of Greater China Department, admitted that the acquisition of Red Hat was aimed at comprehensively entering the cloud market.

However, the move of IBM has something to do with its declining share in the public cloud market. According to IDC's global cloud market research data, from 2014 to 2018, IBM's market share dropped from second to fourth, and the market share of Rackspace, the same hardware manufacturer, also dropped significantly. HP, CISCO and Fujitsu (except Japan) have announced the closure of public cloud services and turned to hybrid cloud business.

"Global cloud computing has entered the second half of differentiated and mature toB services. In 2017 and 2018, the data center high-speed construction cycle is coming to an end, and hybrid cloud and cloud services are becoming a major trend." Around the future evolution of cloud computing market, Tianfeng securities research team pointed out.