Microsoft Corp (MSFT.O) reported results that fell short of analysts' expectations, showing its high-profile cloud business cannot quite make up for weakness in its core PC market.
Two categories showed lower operating profits, led by what Microsoft calls its intelligent cloud division, which includes its Azure cloud-services business as well as traditional server software. Despite revenue at Azure more than doubling, operating profits at the division shrank 14 percent while revenue grew 3 percent.
Continued weakness in the personal computing market hobbled demand for one-time licenses for some of its products, the company said.
"We would have liked to have seen 7 to 9 percent growth," Dan Morgan, a portfolio manager at Synovus Trust who holds Microsoft shares, said of intelligent cloud revenue. "We're trying to validate this story that Microsoft is truly becoming a cloud company, and they're not going to be relying on the desktop computer."
Revenue at the Redmond, Wash.-based software giant fell to $20.53 billion from $21.73 billion, lower than the $22.09 billion analysts had expected.
The company's net income in the third quarter ended March 31 fell to $3.76 billion, or 47 cents per share, from $4.99 billion, or 61 cents per share, a year earlier.
The company blamed a higher than expected tax rate for part of the lower net income.
Adjusted revenue rose to $22.08 billion from $21.73 billion.
Excluding one-time items, Microsoft earned 62 cents per share. Analysts on average had expected a profit of 64 cents per share on revenue of $22.09 billion, according to Thomson Reuters I/B/E/S.
Revenue in Microsoft's intelligent cloud business, which includes the Azure cloud infrastructure and services business as well as products such as server software, rose 3.3 percent to $6.1 billion in the quarter.
Chief Executive Satya Nadella has focussed on developing the company's cloud business with his "mobile first, cloud first" strategy, since taking over in early 2014.
Windows OEM revenue declined 2 percent in constant currency.
Worldwide PC shipments fell 11.5 percent in the first quarter, according to research firm IDC.
(Reporting by Anya George Tharakan in Bengaluru; Editing by Savio D'Souza and Andrew Hay)
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Updated Date: Apr 22, 2016 03:45 AM