Microsoft's quarterly Surface sales sink

039;Microsoft Surface Pro 5’ Could Be Announced During Build Developer Conference Company Needs To Release It Following Q1 Earnings Report

The company's net income rose to $US4.80 billion, or 61 cents per share, in the quarter, from $US3.76 billion, or 47 cents per share, a year earlier. It now amounts to $6.8 billion as compared to $6.1 billion revenue it reported in the same quarter previous year. However, the organic revenue growth (revenue excluding LinkedIn top line) was tepid at 2.8%.

Alphabet, the parent company of Google, declined to disclose revenue from Google Cloud, but CFO Ruth Porat described the business as a major growth engine and "one of the fastest-growing businesses across Alphabet", during the earnings call.

The drop came despite good news from other parts of the personal computing segment, including in Windows OEM revenue (up 5 percent), Windows commercial products and cloud services revenue (up 6 percent) and gaming revenue (up 4 percent). We think Microsoft is successfully solidifying its wide moat around the Office business, with more than 100 million commercial monthly active users on Office 365, and another 26 million consumer subscription have been sold.

Microsoft has won Azure customers like UBS Group, which uses the cloud service for its risk management technology, and chocolate maker Hershey, which relies on Azure's machine-learning service to analyse data coming from sensors tracking the production of its sweets.

Microsoft also, for the first time, reported a revenue growth rate for Dynamics 365, its competitor to Salesforce.com's online sales software. The revenues for the same stood at $8.0 billion. Additionally, LinkedIn added $975 million to the top line in Q3.

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Productivity and Business Processes grew 22% to $8.0 billion. Similarly, revenue from Server products and cloud services too has gone up by 15 percent.

Questions about Microsoft Azure and associated cloud services dominated Microsoft's financial results call yesterday afternoon. As a result of these products, the company's cloud revenue run rate exceeded $15.6 billion. That helped drive Microsoft's Windows licensing revenue up 5 percent this quarter.

The lower-than-expected revenue in the personal computing division came amid an uptick in the PC market.

Analysts on average had expected revenue of $9.22bn (£7.1bn), so this was a bad miss, especially considering that IDC recently said worldwide PC shipments had risen 0.6 percent in the first quarter of 2017 (the first growth in almost five years). But they can't fall much further: Hood was referring to a forecast of the current quarter ending in June, when sales of all Microsoft-branded phones will apparently trickle off into oblivion. Microsoft can get a premium over AWS because it has the ability to move people up the stack to the business process layer, creating more stickiness and higher growth.

In its earnings report Microsoft claimed that "Operating expenses declined 11 percent from lower Phone expense and Surface launch-related marketing spend in the prior year", to which Thurrot explained that, Microsoft basially saved money by killing Windows Phone and not launching a Surface in the second quarter.

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