INTC Intel Corporation

By Asa Fitch 

Continued strength in Microsoft Corp.'s cloud-computing business drove better-than-expected gains in revenue and profit for the latest quarter, while sales of its Windows operating system rebounded from recent weakness caused by a scarcity of computer chips that has hurt sales of PCs.

Revenue rose 14% from a year earlier to $30.57 billion for the fiscal third quarter ended March 31, Microsoft said Wednesday, with growth of 41% in its cloud-computing businesses, which now account for almost a third of its sales.

Those businesses include online versions of software such as Microsoft's Office suite as well as its Azure arm, which rents out computing power to business clients. Azure, the centerpiece of the company's commercial revitalization as slowing sales of its Windows operating system pushed it to expand in other areas, grew by 73% year-over-year, Microsoft said.

Microsoft's stock, which has been on a tear lately, gained more than 2% in after-hours trading following news of the results. Shares closed slightly lower in regular trading Wednesday after hitting a record closing high on Tuesday of $125.44.

Sales of Windows to PC makers rose by 9% in the latest quarter from a year earlier, reversing a 5% decline the previous quarter. The fall had been driven by a capacity shortage at Intel Corp., the largest U.S. chip maker, that has constrained PC sales despite an unexpected spike in demand last year.

Intel Chief Executive Bob Swan said in January he expected the capacity shortage to improve by the middle of the year. Microsoft had anticipated the shortage would continue for the first half of the year. Intel is scheduled to report its quarterly results on Thursday.

In shrugging off challenges and posting strong revenue and profit gains, Microsoft beat estimates of $29.88 billion for revenue, according to a FactSet survey of analysts. The company said profit rose nearly 19% to $8.81 billion, or $1.14 a share, surpassing estimates of $1.00 a share, according to FactSet.

Microsoft CEO Satya Nadella has led a major resurgence at Microsoft since taking the helm in February 2014 -- its shares have soared by about 2.5 times during that period.

Azure has been a critical part of that performance, helping Microsoft to compete with Amazon.com Inc., the global leader in cloud computing, and offer cloud-computing services in tandem with online versions of software. Microsoft doesn't disclose a dollar figure for Azure's revenues.

Azure's growth in the latest period slowed slightly from the 76% annual pace it registered in Microsoft's fiscal second quarter, but it remains extraordinarily rapid for a business of its size.

Sales of cloud-based software like Microsoft's Office 365 suite of word-processing and other productivity applications provided another boost. Office 365 commercial products grew by 30% in the quarter, Microsoft said. The division that contains those products grew 14% to $10.2 billion in revenue for the latest period.

The company's More Personal Computing division, which contains Windows, the Xbox gaming-console business, Microsoft Surface devices and the Bing search engine, grew by a more modest 8% in the quarter to $10.7 billion in revenue.

Results for all three of Microsoft's main divisions -- Productivity and Business Processes, Intelligent Cloud and More Personal Computing -- beat guidance ranges management gave in January.

Write to Asa Fitch at asa.fitch@wsj.com

(END) Dow Jones Newswires

April 24, 2019 17:20 ET (21:20 GMT)

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