Microsoft CEO touts ‘new franchises’ in security, gaming, LinkedIn

Even as Microsoft’s cloud businesses such as Azure and Office 365 continue to see fast-rising demand, the company’s bets on its newer business lines are contributing significant growth as well, CEO Satya Nadella said Tuesday in the US.

During the company’s quarterly call with analysts, Nadella pointed to “new franchises” such as security, which has become one of the biggest areas of investment for Microsoft in recent years. At the company’s Inspire partner conference this month, for instance, Nadella said that “the Microsoft cloud is the only cloud with best-of-breed and best-of-suite security capabilities.”

The software giant has also acquired three cybersecurity companies in 2021 so far, most recently with the acquisition this month of privileged access startup CloudKnox Security.

On Tuesday, Nadella said that while Microsoft’s commercial cloud businesses are continuing to generate massive demand, security, gaming and the LinkedIn professional networking site are becoming large businesses in their own right.

“We continue to grow new franchises for Microsoft in large and growing markets,” Nadella said in remarks during the quarterly call. “In the past three years alone, gaming, security and now LinkedIn have all surpassed US$10 billion in annual revenue.”

For the fourth quarter of Microsoft’s fiscal 2021, ended June 30, LinkedIn revenue grew 46 percent while gaming revenue grew 11 percent, year over year. The company did not disclose growth figures for its security business.

Overall, Microsoft’s fiscal Q4 revenue climbed 21 percent year-over-year to reach US$46.15 billion.

The company said that revenue in its intelligent cloud division totaled US$17.4 billion for the quarter, up 30 percent year over year from US$13.4 billion. The biggest driver for the growth was the 51-percent increase in revenue for the Azure cloud platform, Microsoft said.

Giving some examples of recent Azure wins, Nadella pointed to AT&T’s choice of Azure to power its 5G core network. Meanwhile, AB InBev uses Azure Digital Twins and Azure IoT to power manufacturing and distribution of its goods; companies including Campbell’s Soup and SAP are migrating enterprise resource planning workloads to Azure; and Samsung is among the customers to adopt Azure Applied AI Services for business, he said.

“All this innovation is driving larger and more strategic Azure commitments from industry leaders,” Nadella said.

Migrating customers to Azure has become a dominant business for Chantilly, Va.-based solution provider Phalanx Technology Group, said company president Kelly Yeh. But he said he still wants to see Microsoft invest in on-premises and hybrid support for businesses not just moving to the cloud, but returning to the workplace after the pandemic and putting new strain on printers and local servers.

“We are trying to migrate everyone to Azure as quickly as we can,” Yeh told CRN. “Total abandonment of on-prem is just not practical.”

Fourth-quarter sales in Microsoft’s productivity and business processes segment totaled US$14.7 billion, up 25 percent year over year from US$11.8 billion.

Within this segment, Office Commercial products and cloud services sales increased 20 percent, driven by Office 365 Commercial sales of 25 percent. Office Commercial products sales fell 8 percent due to customers shifting to cloud offerings, Microsoft said.

In the current quarter, “revenue growth will again be driven by Office 365 with healthy seat growth across segments, and continued momentum and E5,” Microsoft CFO Amy Hood said during the quarterly call Tuesday. “In our on-premises business, we expect revenue decline approximately 20 percent consistent with the ongoing customer shift to the cloud.”

On Tuesday, Microsoft disclosed that the Teams collaboration app now has 250 million monthly active users.

Teams had more than 145 million daily active users–a different metric from the one shared Tuesday–as of late April, the company disclosed at the time.

During the quarterly call, Nadella characterized Teams as “the new front end” for meetings, chats, calls and automating business processes. Microsoft now has nearly 80 million monthly active Teams phones users, with total calls passing a billion in a single month during the quarter, he said. And 124 organizations have more than 100,000 Teams users, while nearly 3,000 organizations have 10,000 users.

“Teams usage has never been higher,” Nadella said. “We are nearing 250 million monthly active users as people use teams each day to communicate, collaborate and co-author content across work, life and learning.”

During the latest quarter, Microsoft’s Dynamics products and cloud services sales grew 33 percent year over year, led by Dynamics 365 sales growth of 49 percent.

Nadella said on Tuesday that to understand how Microsoft envisions serving customers in the future, one only needs to look to the integrations among Power Platform, Dynamics, Teams and Azure. Those integrations are “perhaps the best indication of some of our competitive differentiation at scale already,” he said.

“There is an absolute new chapter for a complete new suite all the way from — whether it‘s sales to customer service to marketing to supply chain, or digital manufacturing — that’s all going to be re-implemented,” Nadella said. “There is going to be a complete new cycle of business process automation that is going to be AI-first and collaboration-first.”

For Microsoft’s personal computing segment, revenue during the company’s fiscal Q4 reached US$14.1 billion, up 9 percent year over year from US$12.9 billion.

Surface sales dropped 20 percent — or by US$348 million — year over year, due in part to supply chain issues, Microsoft said.

Hood said that Surface sales, due to a strong prior year, should see declines in the low teens “as we continue to work through the supply chain challenges.”

While Windows Commercial products grew 20 percent, Windows original equipment manufacturer sales dropped by 3 percent year over year.

Windows sales increased by 7 percent — or US$432 million — driven by Windows Commercial products and cloud services. Customers demanded more multi-year agreements, Microsoft said. Additionally, Xbox content and services revenue fell 4 percent.

Net income reached US$16.46 billion, or US$2.17 per diluted share, during Microsoft’s fiscal fourth quarter. Net income had been US$11.2 billion, or US$1.46 per diluted share, during the same period the year before.

For Microsoft’s fiscal year 2021 overall, the company reported sales of US$168.1 billion, up 18 percent from the prior fiscal year.

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