Microsoft executives interpret earnings: cloud services have dual advantages of technology and commerce.


Microsoft executives interpret earnings: cloud services have dual advantages of technology and commerce.

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In the morning of October 25, Beijing time, Sina Technologies News, Microsoft today released its first financial quarter results for the fiscal year ended September 30. Revenue in the first quarter was $29.084 billion, up 19% from $24.538 billion in the same period last year, up 18% year-on-year, excluding exchange rate changes, and net profit in the first quarter was $8.824 billion, up 34% from $6.576 billion in the same period last year, excluding exchange rate changes. 2%. Microsoft's adjusted earnings per share and revenue in the first quarter exceeded Wall Street analysts'expectations, pushing its after-hours share price up nearly 3%.

After the announcement, Microsoft CEO Satya Nadella, CFO Amy Hood and Chief Accountant Frank Brod and other executives attended a follow-up earnings call to interpret the key points and answer analysts'questions.

The following is the main content of this conference call Q & a session.

Heather Bellini, Goldman Sachs analyst: If you look at Microsoft's smart cloud business, especially server products and cloud services, this quarter continues to be strong. My question is, how much impact will the price adjustment implemented at the beginning of this quarter have on the sector's performance? This adjustment may push ahead last quarter's expenditure before implementation. In addition, can management share with us the impact of Azure hybrid benefits on Azure growth? Thank you.

Satya Nadella: I'll answer this question first, and then I'll add it to Amy. I mean, I think what you see is basically two major advantages of Microsoft's overall KPI. The first is the technical advantage of Azure's mix of interests. Therefore, we do not think that mixed use is an obstacle in the process of customer Xiang Yun service migration. We believe that the combination of distributed computing services (cloud services and Edge collaboration) is not only good for old workloads, but also, most importantly, good for new workloads, which are some of the very important feedback loops we see in shaping Microsoft's future roadmap. This is a place where we are in a leading position.

As you pointed out in your question, the second point is that we have the advantage of business mode. The advantage of Azure is that it works with both Windows Server and SQL, and I think these are very unique advantages for Microsoft. So I saw strong technical and business model advantages in the first quarter, whether it's independent Azure growth or not, as we expected, and growth was very strong. Server KPI is even more powerful. So, I think at least part of me answered this question.

Amy Hood: Let me add a few points about the impact of the price hike in the second quarter. First of all, I won't comment too much on this topic, and the business is still showing very strong momentum even with a few points removed from the total. Of course, I agree with Satya that the architectural technology roadmap and the business model that matches it will be affected.

Keith Weiss, an analyst at Morgan Stanley: I want to know about the capital efficiency of Microsoft's cloud assets. Management noted that Azure's gross margin continued to rise slightly this quarter, while capital expenditure growth slowed. Can you share with us what factors enhance the capital efficiency of cloud assets? Is it a shift to higher-level services that will give Microsoft better pricing power, or is it a slowdown in database expansion? Of course, the better result is the productivity improvement of core computing business. Can management help us introduce Azure's current capital intensity and the overall cloud computing business?

Nadella: This is a very good question. I'd like to talk about the way we think about capital efficiency. In fact, we're building Intelligent Cloud and Intelligent Edge platforms to cover everything - not just Azure, but the future of streaming games we're trying on Microsoft 365 or Dynamics 365. This is the first time you've seen a complete platform on a variety of Microsoft products, covering all of these businesses and all the marginal structures they represent.

So Amy and I are focusing on the end-to-end capital efficiency generated in this context rather than being attracted by the capital efficiency measured in an independent part. The reason is that we think this is a unique feature of Microsoft for a long time. But your statement about the Azure business is absolutely correct. It shows that you understand two things. One is the Azure hybrid advantage and the resulting creation of higher-level services. I think it has long-term uniqueness and good profit margins, especially in the database business. I can say that progress is being made every year.

Even if it's just the Azure database itself, this fully compatible service capability with SQL servers is an excellent value proposition for customers with huge assets. So, whether it's a data warehouse, or a very competitive Data Lake and Cosmos DB, I think they're very unique in storage capacity. As we all know, this is the platform for any AI project for structured data, and it's also a place we find attractive to our customers.

Wells Fargo Bank analyst Philip Winslow (Philip Winslow): my question is about Office. Apparently Amy mentioned some of the positive factors in the price hike, but if you look at the commercial and consumer versions of Office 365, there is still a gap between user growth and income growth, especially in the commercial version. So, if you think that's where the business is headed, I think it's a lifecycle, and obviously we have multiple SKUs. Can management give us an update on the business, such as Microsoft's position, especially its view of the year's performance, and how these indicators are expected to perform in the future?

Hood: of course. I will comment further on this topic, because the whole topic is not limited to the sales volume of Office 365. Sales topics do relate to Microsoft 365, which includes both Office 365 value propositions and our EMS management and security value propositions, as well as the advanced threat protection and Windows value shown in the Windows Business Service KPI. Driven by this value proposition, we see many workloads and improvements in E3 and E5 in Microsoft 365, and continue to be very attractive to customers. Customers have great demand for safety, analysis, meetings, and voice.

I think when you look at this value, we are satisfied with the opportunity to continue to push these customers through transformation, including front-line users that we have not been able to reach before. We've got room for user growth, and you're still seeing this number continue to rise in various segments, we have room for growth in ARPU, and we'll continue to see room for growth in this area. So, though in many ways, your problems are only related to Office, but the trend is the same. Both the growth of EMS and the growth of Windows commercial figures reflect this trend.

NADRA: Let me add that even though the number of customers and ARPU has grown in the past, we have never successfully penetrated all the workloads of small businesses, nor have we penetrated the world. So this is another dimension of the Office business you see.

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