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How Microsoft’s Intelligent Cloud Segment Boosted Growth

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Exceeds analysts’ estimates

Previously, we discussed Microsoft’s (MSFT) Productivity and Business Processes segment’s performance and Dynamics 365’s and Office 365’s contribution to it. In this part, we’ll look at Microsoft’s Intelligent Cloud segment, which comprises SQL Server, Windows Server, MS Azure, System Center, mobile tracking devices, and data centers. In short, this segment encompasses the company’s public, private, and hybrid cloud server portfolio, as well as cloud services.

In fiscal 3Q18, Intelligent Cloud’s revenue grew 17% to $7.9 billion, exceeding analysts’ estimate of $7.7 billion. In fiscal 4Q18, Microsoft expects Intelligent Cloud revenue to grow 16% to $9.0 billion–$9.2 billion.

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Azure’s crucial role

Within this segment, server product and cloud service revenue grew 20% year-over-year, while enterprise service revenue surged 8%. Azure continued its double-digit growth of 98% in fiscal 2Q18, soaring 93% in 3Q18. Azure’s 93% revenue growth contributed to the 20% growth seen in server products and cloud services.

Azure premium service revenue reported triple-digit growth for a 15th straight quarter in fiscal 3Q18. Azure Cosmos DB, a new database unveiled in 2017, exceeded $100 million in annualized revenue. Cosmos DB, Azure DB, data services, AI (artificial intelligence), and IoT (Internet of Things) services make up Microsoft’s Azure premium services.

Azure’s crucial role in Microsoft’s prospects is evident. As reported by U.S. News & World Report, Morningstar analyst Rodney Nelson said, “We view Microsoft’s public cloud offering Azure as a multifaceted service that not only provides substantial growth opportunities, but also serves as a natural hedge from potential declines in other aspects of the business.”

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