Microsoft Earnings Beat Expectations as Office, Server Gains Offset a Weak PC Market

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Microsoft on Thursday reported fiscal first quarter adjusted quarterly sales and earnings ahead of what most analysts expected despite a continuation of the sluggish market for new computers.

Excluding certain items, the company posted a net income of $5.4 billion, or 67 cents per share, on revenue of $21.4 billion. On that basis, the company had been expected to report per-share earnings of around 59 cents and revenue of around $21 billion, according to various consensus estimates.

Those figures don’t reflect the impact of some deferred income and revenue related to Windows 10. This is also the first quarter under a new reporting structure that breaks the company into three main units: personal computing (Windows), Productivity and Business Processes (Office) and Intelligent Cloud (Windows Server).

As for Office, the company said it added more than 3 million consumer subscriptions, with 18.2 million consumers now subscribed to Office 365.

On the business side, Microsoft said Office commercial products and cloud services revenue grew 5 percent on a constant currency basis, with Office 365 revenue up nearly 70 percent. Server products and cloud services were up 13 percent, again adjusting for currency fluctuations.

Things were less rosy on the Windows side of things, where the company’s “More Personal Computing” segment saw revenue drop 17 percent, to $9.4 billion, amid weak PC and phone sales. Phone revenue dropped 54 percent as the company continued to scale back that part of the business. The company has exited a number of regions and segments of the market in an effort to contain costs.

Microsoft said its Windows revenue outpaced the overall PC market as computer makers built higher-end machines for Windows 10.

In July, Microsoft’s last report, the company topped estimates but took a huge writedown related to its Nokia acquisition.

Microsoft shares traded higher after the earnings were released, changing hands recently at $50.65, up $2.62, or more than 5 percent.

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Ina Fried

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