Microsoft earnings get a lift from Windows 7 extended security

Microsoft has reported revenue of $36.9bn for the second quarter 2020, up 14% from the equivalent period in 2019. Azure cloud revenue grew by 66%, which helped to boost Microsoft’s commercial cloud revenue to $12.5bn. Office Commercial products and cloud services revenue increased by 16%, while Dynamics products and cloud services revenue rose by 12%.

The company said the end of support for Windows 7 has driven growth in extended support contracts and upgrades to Windows 10.

Microsoft CEO Satya Nadella said: “We are innovating across every layer of our differentiated technology stack and leading in key secular areas that are critical to our customers’ success. Along with our expanding opportunity, we are working to ensure the technology we build is inclusive, trusted and creates a more sustainable world, so every person and every organisation can benefit.”

In  a transcript of the earnings call posted on the Seeking Alpha financial blogging site, Nadella said: “Every customer will need a distributed computing fabric across the cloud and the edge to power their mission-critical workloads and meet regulatory as well as operational solvency needs. Azure is the only cloud that offers consistency across operating models, development environments and infrastructure stack, enabling customers to bring cloud compute and intelligence to any connected or disconnected environment.

“This quarter, we expanded our portfolio of edge appliances. Azure Stack Edge brings rapid machine learning inferencing closer to where data is generated and the new ruggedised Azure Stack form factors provide cloud capabilities in even the harshest of conditions, like disaster response.”

The company reported a wider range in revenue of between $10.75bn and $11.15bn for its More Personal Computing business, to take into account any possible impact arising from the coronavirus outbreak in China.

The company also said the Intel processor supply chain issues have influenced new sales of PCs shipping with Windows 10. In the earnings call, CFO Amy Hood said: “In Windows, overall, OEM [PC manufacturer] revenue growth should be in the low to mid-single-digits and continue to reflect healthy Windows 10 demand, end of support for Windows 7, and the supply chain’s ability to meet demand. The wider-than-usual range in the More Personal Computing segment reflects uncertainty related to the public health situation in China.”

Hood said the Microsoft 365 suite was driving growth in Microsoft’s Windows, Commercial Products and Cloud Services business, and that the company was seeing some benefit from Windows 7 extended support agreements.

These extended security updates provide critical security updates for organisations that need to continue running Windows 7. With prices starting at $50 per device for the first year, $100 per device for the second year and $200 per device for the third, in large enterprises, the cost of keeping the unsupported Windows 7 operating system patched can run into millions.