Four takeaways from Microsoft's Q1 results

Microsoft reports record Q1 as cloud, hardware and business applications all soar

Microsoft has reported a clean sweep of growth in Q1, with revenue climbing in all areas.

Overall sales were up 19 per cent year on year to $29.1bn (£22.6bn), while operating income was up 29 per cent to $10bn.

The vendor saw revenue rise in each of its three business units: Productivity and Business Processes, Intelligent Cloud and More Personal Computing.

Nadella envisages Microsoft as one platform

Despite having a number of strings to its bow, Microsoft CEO Satya Nadella said he foresees Microsoft as one unified platform.

On an earnings call, transcribed by Seeking Alpha, Nadella (pictured) was asked to comment on the capital efficiency (the ratio between a company's expenses and the amount it spends on its products) of Azure.

His answer gave an insight into his long-term vision for Microsoft.

"We're building this intelligent cloud, intelligent edge platform to span everything, not only the Azure business but also the future of game streaming to what we are doing at Microsoft 365 or Dynamics 365," he said.

"For the first time, what you see across Microsoft is really one platform which spans all these businesses and all the margin structures that are there represented in it.

"The thing that Amy [Hood, Microsoft CFO,] and I focus a lot on is the capital efficiency end to end in that context versus getting caught up in even the capital efficiency as measured by any one of these individual pieces, because we think that's where Microsoft's uniqueness [in the] long term lies."

This is perhaps evident in the fact that last year the vendor launched Microsoft 365, which bundles together Office and various other products. On the earnings call Nadella claimed that Microsoft 365 is now a "multibillion-dollar business".

Cloud is flying, but hybrid is here to stay

Revenue in Microsoft's Intelligent Cloud division was up 24 per cent to $8.6bm. Sales derived from products and cloud services rose 28 per cent, which Microsoft said was driven by a 74 per cent increase in Azure Revenue. The vendor does not disclose exact revenue for its public cloud platform.

On the earnings call Nadella said that he expects hybrid to be the ultimate end game for businesses; at least for now.

"We don't think of hybrid as some stop-gap on a move to the cloud," he said.

"We think about it [as] the coming together of distributed computing where the cloud and the edge work together for not just the old workloads, but most importantly for new workloads."

Microsoft's revenue in the More Personal Computing segment - which includes the likes of Windows, gaming and Surface - was up 15 per cent year on year to $10.7bn, and remains the largest of the three divisions.

Sales for Surface products climbed 14 per cent in the quarter.

Dynamics is now a $2.5bn business

Nadella said that Dynamics is set to hit sales of $2.5bn in this financial year, with half of that revenue coming from Dynamics 365.

In its Productivity and Business Processes unit - which encompasses Dynamics, Office and LinkedIn - Microsoft saw revenue rise 19 per cent to $9.8bn.

Revenue from Dynamics was up 20 per cent, while commercial Office sales were up 17 per cent.

Nadella was quizzed by an analyst on whether he thinks Microsoft needs to make an acquisition in the business applications space to be more competitive, but suggested that the vendor's current capabilities are sufficient.

"Overall, I feel very, very good about the opportunity ahead in business applications for us, and I think about the combination of both Dynamics 365 as well as what we're doing on the LinkedIn side," he said.

"They all represent our participation in business applications. In the marketplace, as things become more digital, there is in fact more need for business process automation. At the same time, there is a need for the application suite to be built very differently and that's where I think we have an architectural advantage again with Dynamics 365.

"We'll always look at opportunities outside [to acquire], but in a time when there is a fundamental shift in the category when it comes to both business models and technology, we feel we're well positioned to ride that."

Developers are increasingly important

Microsoft's deal to acquire GitHub received mixed reviews from developers, with some concerned about what impact the vendor's influence over the software development platform will have.

Nadella said that once the acquisition has closed, Microsoft will work to convince developers not already using its products and services to do so, but also stressed that the vendor intents to maintain the GitHub community.

"We're very excited about GitHub closing and primarily I'm excited because for us, as I've always said, GitHub is not a means to some other end," he said.

"It's an end on its own... We've always cared about developer and developer productivity and especially at a time like this when there are more developers outside the tech industry as the world goes digital.

"We think this is perhaps one of the big SaaS opportunities going forward."