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Microsoft Cloud is instrumental to future growth

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Microsoft’s commercial segment

Microsoft’s (MSFT) commercial segment derives its revenue from server products, software licensing, cloud, infrastructure services, software deployment in the cloud, analytics, and more. In 1Q15, Microsoft’s commercial revenue stood at $12.28 billion, an increase of 10% on a year-over-year basis, as the chart below shows.

If Microsoft’s commercial segment continues to post good results, it will benefit exchange-traded funds (or ETFs). These ETFs include the RAFI Fundamental Pure Large Growth Portfolio (or PXLG), Technology Select Sector SPDR (or XLK), iShares U.S. Technology ETF (or IYW), Morgan Stanley Capital International (or MSCI) Information Technology Index ETF (or FTEC). These funds have significant exposure to the company.

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Licensing segment still a key contributor to overall revenues

Microsoft’s (MSFT) licensing segment is comprised of server products such as SQL server, system center, and Windows server. Windows volume licensing contributed $9.87 billion to overall revenues. Microsoft SQL grew at 11% and continues to drive licensing subsegment revenues.

To know in detail about the competitive positioning of Microsoft’s SQL server, please read Market Realist’s series Why Microsoft’s SQL Server 2014 may threaten Oracle’s leadership

Commercial Cloud revenues continue high growth

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Microsoft’s (MSFT) other revenue subsegment is comprised primarily of Microsoft Cloud and Office 365. Those offerings contributed $2.41 billion to overall revenues. The subsegment grew at a phenomenal 50% rate on account of subscriber growth, lower base, and a higher premium mix of Office 465 offerings. In 1Q15, Microsoft reported it has 7 million subscribers for its home and personal versions of Office 365. Commercial Cloud revenue stood at $662 million, an increase of 128% on a year-over-year basis. Revenue from Azure, Microsoft’s Cloud platform, showed 121% growth rate this quarter. The company stated that customers’ preferences for premium services such as Enterprise Mobility Suite and Azure Active Directory led to this segment’s growth.

To read in detail about Azure, please read the Market Realist’s series Why Microsoft Azure may be the key to Microsoft’s future success.

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