Microsoft Corp on Tuesday forecast a strong end to the calendar year thanks to its booming cloud business but said supply chain woes would continue to dog key units such as those producing its Surface laptops and Xbox gaming consoles. Photo: Reuters.
Microsoft Corp on Tuesday forecast a strong end to the calendar year thanks to its booming cloud business but said supply chain woes would continue to dog key units such as those producing its Surface laptops and Xbox gaming consoles. Photo: Reuters.

Microsoft sees cloud business booming, but supply woes continue for Xbox consoles and Surface laptops

By Reuters Time of article published Oct 27, 2021

Share this article:

Microsoft Corp on Tuesday forecast a strong end to the calendar year thanks to its booming cloud business but said supply chain woes would continue to dog key units such as those producing its Surface laptops and Xbox gaming consoles.

The company beat Wall Street expectations for its fist quarter that ended September 30, with pandemic-induced demand for the software giant's cloud-based services driving sales.

Contracts for cloud services provided by Microsoft, Amazon.com Inc's AWS and Alphabet Inc-owned Google Cloud have surged since last year when the Covid-19 pandemic shut offices and schools, pushing more activity online.

First-quarter revenue growth for Azure, the company's flagship cloud-computing business, came in at 48 percent in constant currency to beat analysts' estimates of 47.5 percent, according to consensus data from Visible Alpha. Amy Hood, executive vice president and chief financial officer of Microsoft, said that the company also expected "broad-based growth" for the unit in the fiscal second quarter.

Azure's growth rate is the best direct measure of competition with rivals such as AWS and Google Cloud, as Microsoft does not break out revenue from the cloud-computing unit.

Microsoft appeared to hold off Google Cloud's rising challenge. Google Cloud on Tuesday said its revenue surged by 45 percent to $4.99 billion (R74.5 billion) but failed to live up to estimates of $5.2 billion.

Revenue at the firm's other business units that house Windows software, the Teams messaging service, and LinkedIn professional social networking platform also beat analyst expectations.

The supply chain issues affecting much of the global tech industry had mixed consequences for Microsoft.

Hood said Microsoft has continued to increase its cloud computing margins despite higher data centre construction costs because it keeps adding more profitable services to those data centres.

Hood also said that the company was able to ship more Xbox S and X gaming consoles than it expected in the first quarter – sales of gaming consoles and accessories were up 166 percent as the company continued to see strong demand for new models after the pandemic forced millions to seek entertainment at home.

But Microsoft and its rivals have been unable to keep up with demand because of the global chip crunch. Hood told Reuters the company expects Xbox demand to continue to exceed supply in the company's second quarter, which includes Christmas.

She also said that sales of the company's Surface computers, which declined 17 percent in the fiscal first quarter, were likely to keep sinking in the second quarter, with supply chain shortages hitting premium items in the line-up.

Microsoft's revenue from selling Windows to PC makers grew 10 percent year over year, beating the overall PC market, which only grew 3.9 percent over the same period because of supply constraints, according to data from IDC.

Hood said that the company was able to outperform in the PC market because of its strength in selling licenses for Windows destined for corporate customers, where it gets more revenue per license and has a better market share.

Overall, revenue rose 22 percent to $45.32 billion in the first quarter that ended September 30, beating expectations of about $43.97 billion.

Net income rose to $20.51 billion, or $2.71 per share. The company said its results included a $3.3 billion net income tax benefit.

On an adjusted basis, it earned $2.27 per share, trumping analyst expectations of $2.07 per share.

For the fiscal second quarter, Microsoft predicted a midpoint of $18.23 billion in revenue for its intelligent cloud business, above estimates of $17.84 billion, according to Refinitiv data.

First quarter revenue from "Intelligent Cloud" surged 31 percent to $17 billion. Analysts had expected a figure of $16.58 billion, according to Refinitiv data.

Microsoft's forecast for its software app and Windows-centric segments with midpoints of $15.83 billion and $16.55 billion, respectively, were also above Refinitiv estimates of $15.40 billion and $15.51 billion.

Shares of the company, which have risen nearly 40 percent this year, were marginally up in extended trading.

REUTERS

Share this article: