The company reported a stronger-than-expected adjusted profit, helped by continuing strong sales in its cloud operations.
Microsoft shares climbed after the company reported quarterly earnings, buoyed by growing sales of cloud-computing tools and other business-focused services.
The Redmond company reported earning an adjusted 78 cents a share during the three months through Dec. 31, well above analyst expectations for adjusted profit of 71 cents a share.
Facing a struggling personal-computer market and a tiny presence on mobile devices, Microsoft under Chief Executive Satya Nadella has doubled down on business-focused software and redirected its out-of-the-box software for sales via the Web.
Microsoft units that sell computer-processing power and software over the Internet have grown rapidly in the last two years, giving investors hope that the company could ride out a challenging market for older builders of business technology.
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The opportunity to sell cloud services to businesses, Nadella said on a conference call with analysts on Thursday, “is massive — larger than any market we have ever participated in.”
Nadella on Thursday portrayed that market as led by Seattle-area companies, saying that Microsoft is “one of the two leaders” in business-focused cloud computing, a nod to rival Amazon.com.
Adjusting for the hit from a strong U.S. dollar, which limited the value of sales abroad, revenue from Microsoft’s Azure cloud-computing platform grew 140 percent from a year earlier, the company said. Business sales of the Web-based Office 365 productivity suite climbed almost 70 percent, using a similar currency adjustment.
All told, those units, along with other services Microsoft dubs its “commercial cloud,” were on pace late last year to bring in $9.4 billion over the course of a full year.
“The cloud strategy is working smoothly, and we saw it evidenced again this quarter,” said Daniel Ives, an analyst with FBR Capital Markets.
The quarter did highlight continued weakness in Microsoft businesses tied to new PC sales, including sales of Office and copies of the Windows operating system sold to PC makers.
But those groups didn’t fare quite as poorly as the slumping PC market would indicate. Chris Suh, Microsoft’s general manager of investor relations, attributed that in part to higher-priced Windows licenses sold for consumer PCs as well as success in direct sales to businesses.
“One of the stories over the past four years is the declining sales of PCs,” said Kim Forrest, an equity analyst with Fort Pitt Capital Group. “That was what everybody thought was going to kill Microsoft, and Intel, for that matter. What I don’t think people realize is software kind of marches on.”
The quarter included a big, on-paper distortion that accounted for the cash from sales of Windows 10 over a period of two to four years. Instead of recording sales as a lump sum arriving in the quarter of the sale, revenue from the new operating system is broken up and accounted for over a multiyear period designed to line up with the lifetime of the device Windows is installed on.
Excluding such deferred revenue, Microsoft’s earnings would have been 62 cents a share.
Company revenue, absent deferred Windows sales, was $23.8 billion, down 10 percent from $26.5 billion a year earlier. Net income was $5 billion, down from $5.9 billion.
Shares rose 3.9 percent in after-hours trading to $54.10. They closed regular trading at $52.06 a share, up 26 percent from a year earlier.
Sales in Microsoft’s personal-computing segment, which includes Windows, along with sales of Surface tablets, smartphones and Xbox game console, declined 5 percent during the quarter, to $12.7 billion.
Much of that fall resulted from Microsoft’s sharply curtailed ambitions in the phone-hardware business after writing off the value of the Nokia unit it purchased in 2014. Phone revenue fell by more than half from a year earlier.
Sales from Surface, Microsoft’s line of tablet computers, and a new laptop, climbed 22 percent, to $1.3 billion.
Revenue in Microsoft’s productivity segment, centered on Office, fell 2 percent, to $6.7 billion, which the company attributed to the head winds from the strong dollar, which made sales worth less when translated from other currencies.
Microsoft’s “intelligent cloud” segment, which includes the Azure cloud-computing unit as well as sales of server and database tools, grew 5 percent, to $6.3 billion.
“Azure,” Forrest said, “is going to have a big spotlight on it” this year.