What partners need to know from Microsoft's results as Azure growth declines

Microsoft reports high double-digit growth for Azure, but down on the same quarter last year

Microsoft published its Q2 results overnight, with a double-digit revenue rise not enough to satisfy Wall Street.

The vendor's share price fell more than four per cent in after-hours trading, with sales slightly below expectations.

Revenue for the three months ending 31 December increased 12 per cent to $10.3bn (£7.8bn).

We've picked out the key information for partners from the results release and earnings call.

Azure grew… but not as much

Microsoft does not disclose Azure revenue numbers, but offers a year-on-year growth figure. In this quarter sales rose 76 per cent, continuing a long-running trend of high double-digit growth.

However, this figure compares to a corresponding figure of 98 per cent in Q2 last year.

The Q2 growth is also the same as Microsoft saw in Q1. Analysts have suggested that the decline in Microsoft's share price could be a result of Wall Street believing that Azure growth is beginning to flatten.

When asked to comment on the flat sequential growth, CEO Satya Nadella claimed that Azure infrastructure sales are not the be-all and end-all.

On an earnings call, transcribed by Seeking Alpha, he said: "It doesn't stop in Azure.

"[For one customer] it was Microsoft 365 as well as Azure. In many cases, it's Dynamics 365. Any IoT project on Azure leads to a Dynamics field service project in most instances.

"So we're seeing the breadth and depth of our cloud offering, which is [where] we are really architected to have real synergies."

Nadella also stressed that Microsoft is not seeing demand wane for Azure.

"Our own demand for it - we don't see any change," he said.

"In fact, it's very healthy and we think that it will continue to be healthy.

"If anything, at our scale - as you can imagine - we are becoming much more efficient in how we use software to utilise the capacity we have. So we have significant gains in utilisation across our estate."

Azure is grouped in with other cloud offerings in Microsoft's Intelligent Cloud unit - which saw revenue up 20 per cent to $9.4bn.

Within this unit, server products and cloud services grew 24 per cent, while enterprise services were up six per cent.

Good on the Surface

A resurgence in Microsoft's Surface products has continued, with the hardware family seeing its best ever quarter in Q2.

Nadella said that Surface saw growth across both the consumer and commercial sectors, driven by three of the newer products.

Revenue generated from Surface devices increased 39 per cent year on year.

"We continue to innovate and expand our family of devices, setting the bar for the industry with the newest Surface Pro, Surface Laptop and Surface Go," he claimed.

"More broadly, Windows 10 continues to gain traction in the enterprise as the most secure and productive operating system."

The Surface family is lumped into Microsoft's More Personal Computing unit, which also includes Windows and gaming.

This arm saw sales increase seven per cent to $13bn - the most of Microsoft's three units.

However, the picture wasn't quite as rosy for Windows, with OEM revenue declining five per cent year on year.

Microsoft said that Windows revenue was hit by struggles in the general PC market, which was "smaller than we expected".

The vendor claimed that chip shortages were the main culprit, with OEM partners struggling with supply.

Microsoft however expects Windows OEM growth to return to single-digit growth in its current quarter, despite the forecast that chip constraints will continue.

Office up

The third of Microsoft's units - Productivity and Business Processes - saw revenue climb 13 per cent to $10.1bn.

This was driven largely by Office 365 revenue, which jumped by a third, while LinkedIn saw revenue increase 29 per cent.

Dynamics 365 also grew, with sales up 51 per cent.