Microsoft Posts Strong Q4 Results

Financial Graph

Microsoft CEO Satya Nadella delivered a strong earnings report Thursday, announcing revenue of $24.7 billion for the last three months of the fiscal year, up 10 percent. Overall 2017 revenue was $96.7 billion, up 5 percent, on operating income of about $7.0 billion. That beat Wall Street expectations.

A top driver is Azure, which posted revenue of $7.4 billion, up more than 10 percent year over year. Microsoft’s commercial cloud annualized run rate is now $18.9 billion, and on a call with analysts, CFO Amy Hood said the company has closed the highest number of multimillion-dollar Azure deals to date and improved its annuity mix to 86 percent, up 3 points year-over-year.

“As a result, commercial bookings grew 30 percent,” said Hood.

Microsoft's Satya Nadella

Microsoft’s Satya Nadella

Nadella also touted Azure growth but signaled that, despite writing off Windows Phone losses, it’s still focusing on mobility. In fact, at the recent partner conference, he talked about the next paradigm shift from a mobile-first, cloud-first era to an intelligent-cloud and intelligent-edge era, characterized by three key things: mobile device, mobile sense; artificial intelligence; and serverless.

“Our technology world view of an intelligent cloud and an intelligent edge is resonating with businesses everywhere,” said Nadella on the call. “Every customer I talk to is looking for both innovative technology to drive new growth, as well as a strategic partner who can help build their own digital capability. Microsoft is that trusted partner.”

While Azure Stack, due in September, wasn’t a major topic, he called out the fact that 90 percent of enterprises use Active Directory and said all of them rendezvous with Azure Active Directory, regardless of application or cloud. It pays to own a key control plane.

Nadella also highlighted the new Microsoft 365, which combines Office 365, Windows 10 and enterprise mobility and security offerings into a solution bundle. He called it “a fundamental shift in how we design, build and go to market to address customer needs” and cited Fortune 500 customers including Fed-Ex, Staples and Progressive Insurance.

As to growth areas for partners, use of SharePoint nearly doubled year-over-year, and Redmond is challenging Apple – and Google – in classrooms with the new Microsoft Teams in Office 365 for Education, which Nadella called “the digital hub for students and teachers.”

For Windows 10 hardware, Nadella said Microsoft is looking to develop a “vibrant ecosystem” with technology partners like Acer, ASUS, Dell, Fujitsu, HP, Samsung and Toshiba to introduce Surface devices.

Execs also signaled investments in LinkedIn, including a new career advice marketplace and a new Microsoft Relationship Sales solution that brings together LinkedIn Sales Navigator and Microsoft Dynamics, as well as Dynamics 365 solutions for retail and talent.

“In a world where customers are increasingly digitizing every business process, we continue to invest in and expand our portfolio of modern, modular business applications that are infused with AI,” said Nadella.

If it sounds like a new Microsoft, it is. The company changed the name of its Worldwide Partner Conference to Microsoft Inspire to signal a new emphasis on cloud, digital, AI, IoT and other forward-looking techs. (See highlights of Inspire here.) Microsoft corporate VP of worldwide channels and programs Gavriella Schuster has called Microsoft’s latest reorganization “the biggest change that the company has made to its sales model in more than a decade.”

In some cases, entire partner management teams were let go. The growth of Azure and cloudification of Microsoft’s profit centers illustrates why. See our Q&A with Alyssa Fitzpatrick, Microsoft’s general manager, worldwide channel sales, about what Microsoft partners need to know about the reorganization.

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