Microsoft Leans on Cloud Business in Q3 Earnings

Microsoft's third-quarter financial report on Thursday was a mixed bag, with sliding hardware sales being offset by a strong showing from the company's cloud business.

Microsoft raked in $23.56 billion (non-GAAP) in revenue for the quarter ended March 31, just missing analyst estimates of $23.62 billion.

Revenue for Q3 did increase by 6.7% over the year-ago period. Sequentially, however, revenue fell by nearly 10 percent from the previous quarter, when Microsoft earned $26.07 billion.

Earnings per share (EPS) came in at $0.73, compared to Wall Street estimates of $0.70. EPS is up from $0.62 in the same period last year, but is less than the the previous quarter's EPS of $0.83.

Operating income came in at $7.1 billion, while net income was $5.7 billion.

Microsoft took a hit in its More Personal Computing segment, which includes the Xbox, Surface, and Windows and Windows licensing businesses. Revenue in this segment fell by 7% year over year to $8.84 billion. Small increases in sales from the gaming and Windows OEM businesses, as well as Windows commercial products and cloud services, were overshadowed by a significant drop in Surface revenue, which dropped by 26%.

The company's Productivity and Business Processes segment -- which encompasses Office/Office 365, Dynamics/Dynamics 365 and, now, LinkedIn -- performed well, increasing by 22% year over year to $7.96 billion. LinkedIn, which Microsoft officially acquired in December, accounted for $975 million of that segment's total revenue. In addition, Office 365 commercial revenue grew by 45%, with consumer subscriptions of Office 365 now numbering 26.2 million.

The highlight of the quarter was Microsoft's cloud business, which now has a run rate of $15.2 billion, noted CFO Amy Hood in a statement. The company's Intelligent Cloud segment drew $6.76 billion in revenue in Q3, up 11% year over year. The lion's share of this growth is down to Azure, which saw its revenue balloon by 93%.

"Our results this quarter reflect the trust customers are placing in the Microsoft Cloud," said CEO Satya Nadella in a statement.

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Gladys Rama (@GladysRama3) is the editor of, and, and the editorial director of Converge360.