Microsoft shows inflation-busting growth, driven by cloud adoption

Microsoft has posted revenue of $49.4bn for the quarter ending 31 March 2022, an increase of 18% over the same quarter last year.

Looking at the main growth areas, its Office Commercial products and cloud services business reported a 12% increase in revenue, driven by Office 365 Commercial revenue growth of 17%, while Office Consumer products and cloud services revenue increased by 11%. LinkedIn grew revenue by 34% and Microsoft’s Dynamics products and cloud services increased revenue by 22% due to growth in Dynamics 365, which saw a revenue rise of 35%.

Cloud computing via the Azure public cloud represented the biggest contributor to Microsoft’s revenue during the quarter. Server products and cloud services grew by 29% in terms of revenue, driven by Azure and other cloud services’ revenue growth of 46%.

“Continued customer commitment to our cloud platform and strong sales execution drove better-than-expected commercial bookings growth of 28% and Microsoft cloud revenue of $23.4bn, up 32% year over year,” said Amy Hood, executive vice-president and chief financial officer at Microsoft.

During the earnings call, CEO Satya Nadella discussed how Microsoft was benefiting from customers migrating client server applications to the Azure platform. In the transcript of the earning call, posted on Seeking Alpha, Nadella said: “There is a migration of a bunch of workloads that we may have won in the client server [world] that are migrating, but the most exciting thing is the type of Tier 1 workloads that we have never seen run on any Microsoft infrastructure.”

Nadella said these Tier 1 workloads are now being optimised to run on Azure.

Asked about how the global economic outlook with rising inflation was impacting Microsoft customers, Nadella said the Microsoft cloud was offering customers better value for money over rival offerings. “If there is any macro headwind, where you have more value for less price, means you win. And in our case, when it comes to our commercial cloud offerings, we have significant advantages on that across the stack.”

But in his conversations with customers, Nadella said IT budgets and projects are not being cut back. “I don’t hear of businesses looking at their IT budgets or digital transformation projects as the place for cuts,” he said. “If anything, some of these projects are the way they’re going to accelerate their transformation.”

He pointed to greater automation as an example of this, helping businesses to combat the rise in inflation. According to Nadella, there is now greater demand to improve productivity through the use of automation. “I have not seen this level of demand for automation technology to improve productivity,” he added. “In an inflationary environment, the only deflationary force is software.”

The quarter also saw Microsoft complete its $19bn acquisition of Nuance. Discussing the deal, Nadella said: “For me, the thing that’s exciting is Nuance is a platform layer for AI [artificial intelligence]-driven applications that are getting deployed, whether it’s in healthcare or even in the enterprise contact centre.”