Microsoft beats expectations with Q3 performance built on clouds

Microsoft has avoided taking a hit from macro-economic pressures - so far - with Q3 revenue of $49.36, compared with $41.7 billion a year earlier, and net income of $16.73 billion, up from $15.46 billion. And it’s confident enough of ongoing growth in its cloud offerings for CEO Satya Nadella to outline several reasons for that confidence:

One is just the competitiveness of our tech stack, all [the way] up from infrastructure, all the way to the SaaS applications when it comes to the Commercial Cloud, and as well as how we are able to monetize, for example, the install base of our consumer franchises. So both of these places we feel we are competitive and increasingly so coming out of the pandemic to gain share.

I’d also say that in many of these places, we have price leadership…If there is any macro-headwind where you have more value for less price means you win. And in our case, when it comes to our commercial cloud offerings we have significant advantages on that across the stack.

And nobody is realistically looking to cut back on their IT spend, he argued:

The interesting thing I find from perhaps even past challenges, whether macro or micro, is  I don’t hear of businesses looking to their IT budgets or digital transformation projects as the place for cuts. If anything, some of these projects are the way they’re going to accelerate their transformation for that matter.  Automation, for example - I have not seen this level of demand for automation technology to improve productivity, because in an inflationary environment the only deflationary force is software. 

Cloudy

For Q3, cloud revenue was up 32% year-on-year $23.4 billion, including $19.1 billion coming from Intelligent Cloud. Azure and other cloud services were up 46%  year-on-year, although that’s a slower growth rate then the 60% being reported back in 2020.

Commenting on Azure, Nadella said Microsoft is focused on building a distributed computing fabric across the cloud and the edge to help organizations build, run, and manage mission-critical workloads anywhere. But it’s early days, he added, although progress is being made:

We are winning Tier 1 infrastructure workloads. Leaders in every industry, from Blackrock, to Bridgestone, to Lufthansa, are all moving mission-critical workloads to Azure. And we are the market leader for customers’ SAP workloads in the cloud. Atos, Chevron, Fujitsu, and Woolworths all migrated their SAP applications to Azure in recent months.

Overall, we are seeing larger, more strategic Azure commitments, from industry leaders, including Boeing, Kraft Heinz, US Bank, and Westpac, who all chose our cloud to accelerate their digital transformations. The number of $100 million-plus Azure deals more than doubled year-over-year. And we’re seeing consumption growth across every industry, customer segment, and geography.

And the firm’s industry-centric cloud strategy is also delivering results, he added:

When it comes to industry, our six industry clouds are helping customers speed time to value. Our Cloud for Healthcare was front and center at HIMSS last month, where we introduced Azure Health Data Services to unify disparate clinical, imaging, and medtech data. Cleveland Clinic will use the solution to normalize data from different systems and integrate insights into the clinician workflow. And with our acquisition of Nuance, I’m excited about our opportunity to apply the company’s deep enterprise AI expertise to accelerate the growth of both Nuance’s business, and our industry clouds.

My take

A confident Nadella setting out his stall. Even in the most uncertain of climates, the underlying infrastructure is not the speed that is most likely to be cut back. That said, the one thing that the past two years ought to have taught us all is the nature of unpredictability. But a strong Q3 from Microsoft, built on clouds.