Microsoft financials raise doubts over the future of Windows Phone

Microsoft sold 4.5 million Lumia Windows phones in its most recent quarter, compared to the 10.5 million last year, so phone revenues are down almost 50% year-on-year.

Revenues here fell 2% to $12.7bn (at constant currencies), which the company said was ahead of the broader PC market, reflecting a higher proportion of premium devices, a strong 29% underlying growth in revenues from Surface devices and a 30% increase in Xbox Live active users.

Overall though, Microsoft’s revenue declined by 10 percent year-over-year to just $23.8 billion for the quarter, which makes it all the more important that the company to sustain its cloud growth.

Since assuming the CEO role in February 2014, Microsoft CEO Satya Nadella has been pushing the company to adapt to a world where people are increasingly using mobile gadgets in addition to PCs, and where businesses are moving more of their operations online.

Microsoft also fared well with its Office 365 cloud product, a major part of the “intelligent cloud” sector, which saw revenue growth of almost 70% in constant currency.

Revenue for a relatively new reporting segment called Intelligent Cloud – which commingles the Azure cloud-computing service with data-center software installed on customers’ computers, as well as support and consulting – grew 11% excluding currency effects, the company said. The company was driven by strong performance from its cloud computing and Surface business units. Microsoft’s adjusted revenue fell from the $26.14 billion it recorded for the year-ago quarter.

Amazon and its fast-growing Amazon Web Services business is a formidable opponent in cloud computing, though. This was possible not only thanks to the powerful hardware that comes with the Surface tablet but also thanks to Windows 10, which greatly improves functionality in both desktop and tablet models. Net income was $6.3 billion, with earnings per share of 78 cents, beating Wall Street analyst expectations of 71 cents. The declining PC market still affected the company, even though Windows 10 released last summer, as Windows OEM Pro revenue fell 6 per cent.

Microsoft’s stock rose more than 3 percent in extended trading after the results came out. While revenue from server based products rose by 10%, Azure revenue grew 140%.

Microsoft did not release a revenue figure for Bing, but said it expects it to “continue to grow and remain profitable”, said Amy Hood, chief financial officer at Microsoft.