The beginning of Microsoft's fiscal year began auspiciously, with booming sales in cloud-based businesses, so much so that a 72% decline in mobile phone revenue was easily offset by Azure's blockbuster performance.
Overall, the company reported revenue of $20 billion for the quarter, approximately the same as Q1 FY 2016, and earnings per share of $0.60 -- again, roughly approximate to the year-ago earnings. However, thanks continued growth in its cloud-based offerings and strong year-over-year performances in the Intelligent Cloud and Productivity & Business Processes units, investors gave the company a strong vote of confidence.
Here's what you can learn about where Microsoft will be directing its attention -- and reaping rewards:
It's not counting on Windows 10 for the desktop to boost revenue. Although some personal computing sales forecasts have posited that consumers will be looking to upgrade computers, it's certainly not evident in any of the numbers from the More Personal Computing Unit.
Revenue dropped 2% to $9.3 billion. This continues a general downward trend for the unit: Remember that it made $9.4 bil in Q1 2016, $12.7 bil in Q2 2016, $9.5 bil in Q3 2016 and $8.9 billion in Q4 2016.
Windows OEM revenue was flat year-over-year; that this was better than the overall OEM market is now considered a victory.
Gaming revenue dropped 5%; higher Xbox subscription revenue did not offset lower console sales this time.
And once again, Bing is doing quite well. Remember that in FY 2016, it reported $5.3 in annual revenue. While the release declined to put a number to search revenue this time out, it reported a 9% rise in year-over-year Bing revenue thanks to a one-two punch of higher search volume and higher search-based revenue.
It's sunset for servers. The Microsoft Ignite 2016 keynote was unambiguous about the future of IT, casting it as a cloud-based operation where jobs would combine technical deployment skills with business strategy. There was nary a word about on-premises IT. The way the Intelligent Cloud unit reported revenue undergirds this shift from on-premises to off: It stressed that the server products and cloud services revenue rose 11% solely on the strength of annuity-based revenue (in other words, products that had been around forever) and not because of new product introduction. And it also noted the 1% rise in enterprise services revenue happened despite a decline in custom support agreements.
Overall, revenue in Intelligent Cloud grew 8% to $6.4 billion -- less than the Personal Computing unit is making but logging five straight quarters of growth, the only one of Microsoft's three big divisions to do so.
Meanwhile, the metric everyone is paying attention is this one: "Azure revenue grew 116% (up 121% in constant currency) with Azure compute usage more than doubling year-over-year." Analysts think Microsoft is finally at a level where it can take on Amazon Web Services.
People are beginning to buy into artificial intelligence. At this point, we should all just assume that when Microsoft makes statements about the future of technology, they're doing so only after looking at their ledger. Over in the Productivity and Business Processes unit, Microsoft's Dynamics products and cloud services revenue grew 11%. You'll recall that Dynamics deals with both customer relationship management (CRM) software and enterprise resource planning (ERP) software, and that last week, Microsoft announced that Dynamics 365 will have artificial intelligence baked right in. This could be the beginning of a positive feedback loop -- more people signing on for AI-enhanced products, more AI incorporated into the product lines.
Office 365 has made some consumer inroads. It's now up to 24 million subscribers -- a tiny bump from the 23.1 million subscribers reported for Q4 16, but a 32% jump from the Q1 2016. In other words, it took a year for Microsoft to grow their subscriber base by nearly a third. We'll have to keep an eye on whether they can maintain steady cumulative growth or not.
To see Microsoft's earnings from Q1 2017, here's the link to the FY 2017 Q1 release.