Satya Nadella is relentlessly on focus when it comes to reminding an audience of Microsoft's present and future businesses. In today's earnings call, he opened by telling everyone how he talks about "digital transformation" with everyone from heads of state to project leads, then moved through the company's other public positions -- machine learning, cloud computing and productivity enhancement. That focus reflects the company's results. Today's earning call showed exactly how the cloud's boosting Microsoft's bottom line and how machine intelligence may be quietly building out its search service.
The earnings themselves exceeded analysts' predictions of 79 cents a share in $25 billion in sales: Microsoft reported 84 cents a share on adjusted sales of $25.8 billion.
But what does it all mean about what the company did and will continue to do?
Bing continues to sing
Remember that Bing was a strong performer last year, with $5.3 billion in annual revenue. The search tool's cozy relationships with Windows 10 and Cortana continue to pay off with a 10% rise in revenue year-over-year due to increased search volume and increased revenue-per-search.
A growing cloud lifts all margins
In the Productivity and Business Processes division, Office's cloud-based revenue was up 22%, thanks to a rise in users: Office 365 consumer seats grew 25% year over year, while Office 365's commercial seats were up 37%. In the Intelligent Cloud division, revenue for cloud services was up 12%; in a promising sign for future growth,the commercial cloud gross margin was 48%, a 2% boost over last year. And in the More Personal Computing division, XBox Live's user transactions exceeded $1 billion for the first time.
PC sales have slowed their fall, but don't look for a turnaround
Windows OEM sales grew 5% year-over-year, but the real driver was Surface revenue, which stood at $1.3 billion, up 43% from the prior quarter and just about level from last year. The brisk sales were due to the holiday demand for tablets and the excitement over the Surface Studio. Still overall devices revenue was down. If you look at Microsoft's breakdown of which divisions gained or lost revenue (at left), you'll see that the only division which had a greater drop in revenue than the devices division was the phone division.
One interesting sign: HoloLens is coming to China in the first half of this year, and it was mentioned a few more times during the investor call, especially in partnership with Intel. If Microsoft's going to colonize a new hardware market, it may well be doing so with its VR headset.