According to Canalys, the worldwide spending on cloud infrastructure services grew 38% over the year in the second quarter of the year to $26.3 billion. Amazon remains the leader in the market with a 31.5% market share. Microsoft (Nasdaq: MSFT) is a distant second with 18.1% market share. Microsoft is driving hard on its cloud initiative. Its recent quarterly results surpassed expectations on all fronts but failed to surpass the strong cloud expectations set by the market. Despite the overall impressive results, the stock did not move much.
Microsoft’s Q1 revenues grew 14% over the year to $33.1 billion, significantly ahead of the market’s forecast of $32.14 billion. Net income grew 21% to $10.7 billion. EPS grew 21% over the year to $1.38 for the quarter, again ahead of the Street’s forecast of $1.24.
By segment, revenues in Productivity and Business Processes grew 13% to $11.1 billion driven by 13% growth in Office Commercial products and cloud services, 25% growth in Office 365 Commercial revenue, and 25% growth in LinkedIn revenues.
Revenue from Intelligent Cloud grew 27% to $10.8 billion with server products and cloud services revenues growing 30%. Revenue from More Personal Computing segment grew just 4% to $11.1 billion with Windows OEM revenue growing 9%.
For the second quarter, Microsoft expects revenue of $35.15 to $35.95 billion. Analysts expect Microsoft to end the current quarter with revenues of $36.04 billion and an EPS of $1.27.
Microsoft’s Azure Growth
The market and Microsoft remain focused on Azure. Azure revenue grew 59%, which was slower than the previous quarter’s 64% and previous year’s 76% growth rate. Although 59% is a strong growth rate, its growth is slowing down. The market was looking for 60% growth from Azure.
Microsoft continues to drive growth for Azure through tie-ups and product upgrades. Recently, it entered into a strategic relationship with SAP as part of SAP’s Embrace initiative. As part of the agreement, Microsoft will embed SAP Cloud platform solutions and related services within Azure Cloud Services, thus becoming a reseller for SAP services. The two companies will partner together to support customer needs and provide road maps to the digital enterprise with recommended solutions and reference architectures for customers.
Microsoft is also adding vertical-specific features to the cloud. For instance, for the healthcare vertical, it recently announced that Azure was the first public cloud vendor to have native support for the Fast Healthcare Interoperability Resource (FHIR) format. The Azure API for FHIR will allow anyone working with FHIR health data to bring together health data from disparate systems using the approved secure industry standards.
Last month, Microsoft announced the acquisition of cloud migration specialist Movere. Bellevue-based Movere was set up in 2008 as a discovery solution to provide data and insights needed to plan cloud migrations. Movere’s technology helps IT administrators understand how data center tools are used and then determine the best options as they move into the public cloud. Microsoft plans to integrate Movere’s expertise with Azure Migrate to allow its ecosystem of independent software vendor (ISV) partners’ solutions to provide a comprehensive set of capabilities from discovery and assessment to migration and optimization. The terms of the acquisition were not disclosed.
In spite of Microsoft’s strong performance, the market seems to want more. Its stock is currently trading at $139.94 with a market capitalization of $1.08 trillion. It had climbed to a record high of $142.37 in July this year. It has recovered from the 52-week low of $93.96 in December last year.