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Microsoft hardware plummets despite cloud gains

Surface and PCs drop, but Microsoft looks to its cloud

Satya Nadella

Microsoft marginally missed analyst revenue estimates during the latest quarter, as the company experience decline in its hardware businesses, despite surging cloud growth.

Overall adjusted revenue rose 6% to $23.56 billion,slightly below analyst estimates of $23.62 billion. The mixed results sent shares in the technology giant falling by 0.6% to $67.85 in after hours trading.

Microsoft's CEO, Satya Nadella, has steadily shifted Microsoft's focus away from the declining PC market, towards the burgeoning cloud computing industry. That move seems to be paying off for Microsoft, as annual cloud revenues reached $15.2 billion, a 50% year-over-year increase.

"Our results this quarter reflect the trust customers are placing in the Microsoft Cloud," Nadella said in the earnings statement. "From large multi-nationals to small and medium businesses to non-profits all over the world, organisations are using Microsoft's cloud platforms to power their digital transformation."

This is largely thanks to a thriving Office 365 commercial platform, which Microsoft revealed has now reached 100 million monthly active users. Revenue for Office commercial products and cloud services rose 7% during the third quarter, while the consumer side saw revenue surge by 15% with subscribers at 26.2 million.

Revenue in Microsoft's Azure business also saw massive gains, rising 93% in the quarter, and revenue for its Salesforce CRM competitor Dynamics 365, which it issoon fuelling with LinkedIn data, also grew 82%.

Dragging down these impressive numbers was the company's hardware and traditional PC businesses, which experienced a 7% dip in revenues. Revenue for Microsoft's Surface range of tablets and ultrabooksplunged 26% to $831 million from $1.3 billion last year.

This is despite a 0.6% overall increase in PC shipments in the first quarter of 2017, according toresearch by IDCearlier in the month.

Microsoft has faced strong competition from new high-end products, and although a Surface refresh is expected soon, the most recent products have been on the market for almost two years.

Unsurprisingly the biggest loss came from its struggling Windows smartphones division. With a loss of $730 million in the last quarter, Microsoft hasreportedly confirmedthat there is now very little money left in the venture, making it possible that Microsoft could scrap development for Windows 10 Mobile before the end of the year.

However, there was some good news for Microsoft's search platform, Bing, which has struggled to compete against the more popular Google. The software unit saw revenues grow by 8%, largely driven by increased revenue per search and a higher usage volume.

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