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Earnings

Microsoft earnings: Thanks for the clouds

​Microsoft logo
Microsoft
  • Q3 revenue: $35 billion (15% YoY, -5% QoQ, vs. $33.7 billion expected)
  • Q3 earnings: $10.8 billion (22% YoY, -7% QoQ, above expectations)
  • Q4 revenue guidance: Microsoft provided segment guidance instead of an overall number, but the total added up to a range of $35.85 billion to $36.8 billion, roughly in line with analyst expectations.

The big number: Revenue from Microsoft Azure grew 59% during the company's third fiscal quarter. While growth has steadily decreased as Azure starts to generate big revenue, Azure is growing faster than anything else Microsoft called out in its earnings release.

People are talking: "We have seen two years worth of digital transformation in two months," CEO Satya Nadella said on the company's earnings call.

Opportunities: A pandemic might be forever reshaping the world economy right now, but it's a good time to be in the enterprise cloud business. Microsoft's commercial cloud revenue — which includes Azure, commercial Office 365, Dynamics 365 and a few other things — grew 39% during the quarter, accounting for the bulk of Microsoft's growth during the quarter.

Current customers are using more and more of Microsoft cloud services thanks to stay-at-home orders: Microsoft Teams usage shot up from 20 million users per day late last year, to 44 million daily users in March and to 75 million daily users as of Wednesday's earnings call.

Potential customers no longer need an education in how cloud computing can modernize their technology infrastructure. Even sales of Microsoft's traditional Windows Server licenses are growing faster as companies increasingly opt for hybrid cloud strategies when upgrading their kit.

Threats: Microsoft had planned to spend more money on capital expenditures during its third quarter than it did in the previous quarter, but blamed the "supply-chain disruptions" that knocked several major manufacturers offline in China during January, as the country grappled with COVID-19. Instead, it spent roughly the same amount ($3.9 billion) on its cloud infrastructure, which had come under fire for the capacity issues that affected Azure customers during the quarter.

Commercial bookings growth fell off a cliff, increasing just 7% during the quarter compared to an increase of 30% in the quarter last year. Bookings are a notoriously imperfect metric when judging the future health of a software company, but that's a substantial drop compared to prior quarters.

The power struggle: Assuming it can fix its capacity issues, Microsoft is in as good a position as any major corporation heading into what could be one of the worst economic quarters in U.S. history. CFO Amy Hood vowed that Microsoft would "invest aggressively" in capital expenditures for its cloud business in the upcoming quarter, and that should help the company support the increasing activity from current customers and bring on new ones.

Enterprise software is not an impulse purchase; it's a vital part of any modern business, and demand for the types of services Microsoft provides will only increase once tech buyers start to understand what their 2021 budgets will look like. Still, competition among Microsoft, AWS and Google for that business is likely to increase, and those companies weren't exactly playing a friendly game of cards before the pandemic.

Protocol | Enterprise

Alphabet goes deep into industrial robotic software with Intrinsic

If it succeeds, the gambit could help support Google Cloud's lofty ambitions in the manufacturing sector.

Alphabet is aiming to make advanced robotic technology affordable to customers.

Photo: Getty Images

Alphabet launched a new division Friday called Intrinsic, which will focus on building software for industrial robots, per a blog post. The move plunges the tech giant deeper into a sector that's in the midst of a major wave of digitization.

The goal of Intrinsic is to "give industrial robots the ability to sense, learn, and automatically make adjustments as they're completing tasks, so they work in a wider range of settings and applications," CEO Wendy Tan-White wrote in the post.

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Joe Williams

Joe Williams is a senior reporter at Protocol covering enterprise software, including industry giants like Salesforce, Microsoft, IBM and Oracle. He previously covered emerging technology for Business Insider. Joe can be reached at JWilliams@Protocol.com. To share information confidentially, he can also be contacted on a non-work device via Signal (+1-309-265-6120) or JPW53189@protonmail.com.

As President of Alibaba Group, I am often asked, "What is Alibaba doing in the U.S.?"

In fact, most people are not aware we have a business in the U.S. because we are not a U.S. consumer-facing service that people use every day – nor do we want to be. Our consumers – nearly 900 million of them – are located in China.

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J. Michael Evans
Michael Evans leads and executes Alibaba Group's international strategy for globalizing the company and expanding its businesses outside of China.
People

To combat disinformation, centralize moderation

There's more to content moderation than deplatforming.

In addition to interplatform collaboration, big tech companies would also benefit from greater collaborations with academic researchers, government agencies or other private entities, the authors argue.

Image: Twitter

Yonatan Lupu is an associate professor of political science and international affairs at George Washington University. Nicolás Velasquez Hernandez is a lecturer at the Elliott School of International Affairs and a postdoctoral researcher at GW's Institute for Data, Democracy and Politics.

Florida Gov. Ron DeSantis' signing of a bill that penalizes social media companies for deplatforming politicians was yet another salvo in an escalating struggle over the growth and spread of digital disinformation, malicious content and extremist ideology. While Big Tech, world leaders and policymakers — along with many of us in the research community — all recognize the importance of mitigating online and offline harm, agreement on how best to do that is few and far between.

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Protocol | Fintech

Marqeta turns to a fintech outsider

Randy Kern, a Salesforce and Microsoft veteran, is taking a plunge into the payments world.

Randy Kern is joining Marqeta after decades at Microsoft and Salesforce.

Photo: Marqeta

Marqeta has just named a new chief technology officer. And it's an eyebrow-raising choice for a critical post as the payments powerhouse faces new challenges as a public company.

Randy Kern, who joined Marqeta last month, is a tech veteran with decades of engineering and leadership experience, mainly in enterprise software. He worked on Microsoft's Azure and Bing technologies, and then went on to Salesforce where he last served as chief customer technology officer.

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Benjamin Pimentel

Benjamin Pimentel ( @benpimentel) covers fintech from San Francisco. He has reported on many of the biggest tech stories over the past 20 years for the San Francisco Chronicle, Dow Jones MarketWatch and Business Insider, from the dot-com crash, the rise of cloud computing, social networking and AI to the impact of the Great Recession and the COVID crisis on Silicon Valley and beyond. He can be reached at bpimentel@protocol.com or via Signal at (510)731-8429.

Protocol | Policy

What can’t Jonathan Kanter do?

Biden's nominee to lead the DOJ's antitrust section may face calls to remove himself from issues as weighty as cracking down on Google and Apple.

DOJ antitrust nominee Jonathan Kanter's work as a corporate lawyer may require him to recuse himself from certain cases.

Photo: New America/Flickr

Jonathan Kanter, President Joe Biden's nominee to run the Justice Department's antitrust division, has been a favorite of progressives, competitors to Big Tech companies and even some Republicans due to his longtime criticism of companies like Google.

But his prior work as a corporate lawyer going after tech giants may require him to recuse himself from some of the DOJ's marquee investigations and cases, including those involving Google and Apple.

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Ben Brody

Ben Brody (@ BenBrodyDC) is a senior reporter at Protocol focusing on how Congress, courts and agencies affect the online world we live in. He formerly covered tech policy and lobbying (including antitrust, Section 230 and privacy) at Bloomberg News, where he previously reported on the influence industry, government ethics and the 2016 presidential election. Before that, Ben covered business news at CNNMoney and AdAge, and all manner of stories in and around New York. He still loves appearing on the New York news radio he grew up with.

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