Microsoft earnings trounce expectations, but Azure growth rate continues to shrink

Microsoft Corp. easily trumped expectations with an earnings report Wednesday afternoon that displayed double-digit percentage gains in profit and sales, but the Azure cloud business’s growth rate continued to decline.

Microsoft’s rise to a trillion-dollar company has been driven by large gains in cloud-computing services, as it attempts to challenge Amazon.com Inc.’s AMZN, -0.20% leading Amazon Web Services offering with its own Azure cloud service. Microsoft said that its “Intelligent Cloud” segment recorded revenue of $10.8 billion, higher than the average analyst estimate of $10.42 billion.

Microsoft reported growth rates for 14 individual businesses in Wednesday’s report, and only one — the Surface PC business — reported a decline in revenue from a year ago, as Microsoft prepared to reveal a refreshed lineup of Surface products earlier this month. The Xbox gaming business was flat from a year ago ahead of the holiday season, while nine businesses reported growth rates in double-digit percentages.

The new Surface products are expected to drive revenue growth in that division to the low double-digits from last year, despite “strong” Surface sales in the year-ago quarter. Microsoft expects to struggle in gaming ahead of the expected launch of a new Xbox console next year, with Hood saying that Xbox revenue will “decline in the mid-20% range.”

There is no cloud. It’s just someone else’s computer.

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