Microsoft reported an increase in revenue last quarter that indicates businesses are buying more PCs and using them to access cloud-based software.
Microsoft said July 22 revenue rose by 18 percent in the fiscal fourth quarter to $23.4 billion. Net income for the quarter ended June 30 fell 7 percent year over year to $4.6 billion, while EPS came in at 55 cents a share.
Earnings were reduced by the Nokia acquisition completed in April.
As in previous quarters, Microsoft reported strong growth in the cloud. Commercial cloud revenue, which would include Office 365, Azure and Dynamics business applications, grew 147 percent with an annualized run rate of more than $4.4 billion.
The number of Office 365 Home and Personal subscribers, which are mostly consumers, topped 5.6 million with 1 million added during the last quarter.
The numbers are "a good indication that cloud is becoming more vital" to Microsoft, Ted Schadler, analyst for Forrester Research, told CruxialCIO.
In talking to IT executives, R "Ray" Wang, analyst for Constellation Research, has found that many enterprises are looking to Redmond for help migrating to the cloud.
"Microsoft is seen as the trusted adviser," Wang said.
Cloud subscriptions were not all businesses were buying. Windows volume licensing revenue grew 11 percent, an indication that PC sales were also up.
"That does indicate there's a bit of a revival in the PC market," Forrester analyst Andrew Bartels said, pointing out that Windows sales were flat last quarter and down the period before.
Microsoft revenue up 18% on cloud, PC spending.
Indeed, the global PC market, which fell 9.5 percent in 2013, was expected to drop only 2.9 percent this year, according to Gartner. Next year, sales are predicted to grow by 2.6 percent, the first increase since early 2012.
Contributing to the market recovery are businesses upgrading from PCs running Windows XP, which Microsoft stopped supporting in April. In addition, businesses and consumers are finding that work-related tasks often require the computing power of a laptop.
For the current quarter, Microsoft forecast software-licensing revenue from devices and consumer products of $4.1 billion to $4.2 billion.
"This range reflects an ongoing business PC refresh cycle, headwinds for consumer PCs and a continued moderation of the benefits from the XP end of support," Amy Hood, chief financial officer for Microsoft, told analysts in a conference call following the release of earnings.
Revenue from server products grew by 16 percent, with double-digit growth for SQL Server and System Center, which is software for managing servers on-premise and in the Azure cloud.
"Overall, we've had a major rebound of our server line up," Microsoft Chief Executive Satya Nadella told analysts.
The Nokia acquisition weighed heavily on Microsoft results. The purchase reduced earnings by 8 cents a share and operating income by $692 million. Hood told analysts that the company planned to take $1 billion in costs from the Nokia operation and stop its losses by fiscal 2016.
Earnings were released a week after Nadella announced the company would cut 18,000 jobs. Nearly 90 percent of the reduction was due to worker overlap from Nokia.
The pre-tax cost of the restructuring was estimated at between $1.1 billion and $1.6 billion, which would be recorded mostly in the first half of the current fiscal year.