Microsoft Corp.’s push into cloud computing, which is accelerating under new Chief Executive Officer Satya Nadella, paid off in the fiscal third quarter.
Net income in the period that ended March 31 was $5.66 billion, or 68 cents a share, Redmond, Wash.-based Microsoft said Thursday in a statement. Sales were $20.4 billion. That compared with an average of analysts’ projections of 63 cents in profit on $20.4 billion in revenue, according to data compiled by Bloomberg.
Nadella, who took the helm a little more than two months ago, is leading a shift to focus on selling devices and software delivered over the Internet, both for Microsoft’s Windows operating system and rival programs. Web-based tools, such as Office software and Azure cloud services, are raising revenue, helping the largest software-maker grapple with shrinking personal-computer demand and a failure to gain ground in tablets and smartphones.
“Cloud continues to be a pillar of strength,” saidDaniel Ives, an analyst at FBR Capital Markets & Co., who rates the shares the equivalent of a hold. “It’s not a great PC market at all, but it has become less bad.”
Microsoft shares rose as high as $41 in extended trading after the report. They advanced less than 1 percent to $39.86 at the close in New York.The stock climbed 9.6 percent last quarter, compared with a 1.3 percent increase in the Standard & Poor’s 500 index.
Unearned revenue, which comes from sales of multiyear deals that will be recognized in the future, was $19.5 billion for the quarter, compared with the $18.6 billion average analyst projection, according to data compiled by Bloomberg.
Since replacing Steve Ballmer on Feb. 4, Nadella has rearranged his leadership team,making changes in areas such as marketing, Xbox, hardware and business development.
He has also overseen the release of a cloud version of Office for Apple Inc.’s iPad, and he pledged Microsoft’s attention to developing quality versions of its programs for rival operating systems - a departure from the company’s past approach.
Microsoft is giving away versions of Windows for phones and small tablets, seeking to build demand for handheld devices that run the program in a market now dominated by Apple and Google Inc.’s Android software. Microsoft will bolster its smartphone offerings through the acquisition of Nokia Oyj’s device and services business for $7.5 billion, a deal that the companies expect to close today.
About 90 percent of the world’s personal computers run on Microsoft Windows. Global personal computershipments declined 1.7 percent in the March quarter, researcher Gartner Inc. said earlier this month. That’s a smaller drop than in the previous quarter, when shipments fell 6.9 percent.
For many investors, financial results have taken a back seat for now to Nadella’s strategy and plans, Ives said. Computer shipment declines are getting smaller, which is also helping to ease the pressure. Still, the new CEO must figureout a way to restore Microsoft to prominence in the parts of the technology market that matter most now.
“This all helps Microsoft’s cause, but it doesn’t change the story that it continues to be a very tough PC environment,” Ives said.
“For them to show sustainable growth of anything above single digits will be very difficult unless they find growth in cloud, mobile and tablets.”
Business, Pages 25 on 04/25/2014