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The cloud and Office keep Microsoft afloat during PC slump

And once again, phones were a big bummer for the company.
The cloud and Office keep Microsoft afloat during PC slump
Chris Velazco
Chris Velazco|@chrisvelazco|January 26, 2017 5:10 PM

It's been clear for a while that a big part of Microsoft's future is ensconced in the cloud, and its latest (Q2 2017) earnings report just drives that point home. Wall Street types have been paying close attention to the company's Azure cloud services, and with good reason — Microsoft almost doubled its Azure revenue since this time last year, making up a considerable chunk of the Intelligent Cloud unit's 8 percent revenue bump.

Wall Street types have been keeping a close eye on Azure as more people flock to it, and rightly so: usage has nearly doubled since the year-ago quarter. Azure has always played second fiddle to Amazon's more widely used Web Services, but it still packs potential for big growth (and lots of extra dollar signs). We're seeing similar jumps when it comes to many Microsoft cloud segments, too: the company's lucrative server and cloud services business is up 12 percent over last year and in the Productivity and Business Processes bucket, money generated from Office consumer products and cloud services was up 22 percent.

Speaking of productivity, a note for your avid earnings watchers: Microsoft's report looks a little different this time because it fully factors in the costs of the LinkedIn acquisition. That means there are two sets of numbers to consider if you're looking at how Microsoft's productivity division is doing, but more interesting than that is how LinkedIn — the world's most valuable/obnoxious social network — generated a cool $228 million for Microsoft in just three weeks. The flip side? LinkedIn's net income was way in the negatives; think a loss of $100 million.

Meanwhile, the stuff we generally consider more fun didn't do quite as hot. Take the More Personal Computing division, for instance — it's the wondrous place where Microsoft lumps its Windows license revenue, along with money garnered from gaming and device sales. This business unit as a whole took a five percent hit (down to $11.8 billion) compared to the last year, and Microsoft was quick to point out in its earnings release that slumping phone revenues were to blame.

Despite Surface Phone rumors that never seem to die, Windows Phones like the Lumia 950 and 950 XL have failed to moved the needle the way Microsoft always hoped they would. And speaking of Surface, Microsoft pulled in slightly less money off its line of high-powered convertibles than it did this time last year, but only just — we're looking at a 2 percent hit, but sales could rally thanks to a juicy (but temporary) price cut. Then again, this quarter includes all of our frenzied holiday shopping, so there's no way Microsoft doesn't wish it did better. The one silver lining is that Microsoft's revenue from licensing Windows 10 to PC makers was up 10 percent; too bad Gartner says we're in 5th straight year of declining PC sales.

The cloud and Office keep Microsoft afloat during PC slump