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Microsoft’s Server Business Shows Strong Momentum

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Server business trends and guidance

Microsoft’s (MSFT) server business, which belongs to the Intelligent Cloud segment, continues to retain its solid growth momentum. In the last five quarters, the revenue from the server unit has witnessed double-digit growth. The graph below shows server revenue growth on a constant currency basis for Microsoft in the last five quarters. During the period, it has shown an increasing trend.

Despite the ongoing migration of workloads to the cloud from the on-premise SQL and Windows server, the server business remains quite stable for the company. The tech giant expects revenue from the server business in fiscal 2019 to grow in the low to mid-single digits.

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Analysis of the key catalysts and headwinds

Microsoft’s server business is gaining from healthy demand for on-premise SQL and Windows servers. Moreover, Azure Plus, or the hybrid infrastructure, offers more flexibility to customers to use its server license products on premise and on its cloud platform. It also provides its customers with a cost advantage. Thus, the deployment of such a flexible strategy could act as a strong tailwind for the company’s server business.

The growing popularity of the server virtualization market driven by cloud computing technology continues to act as a headwind for the server business. Moreover, the availability of a software-defined data center solution from companies like VMware (VMW) could also hurt the traditional server market.

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