Microsoft Corp. (MSFT) is reportedly gearing up to announce a major overhaul of its business on July 5 with the focus shifting more toward cloud computing, which has been booming for the software giant.
Unnamed sources told the Puget Sound Business Journal the changes are aimed at better aligning the company with its so-called cloud-first strategy that is being led by Azure, its cloud hosting business. It not clear if that will result in layoffs or any restructuring charges. (See also: Microsoft's Azure Cloud Revenue Estimated at $3B.)
While it has long played second fiddle to Amazon.com Inc. (AMZN) and its Amazon Web Services (AWS) unit, Microsoft has been chipping away at its dominance. Earlier this month, Pacific Crest Securities analyst Brent Bracelin said in a research report that Azure could have more revenue than AWS for the first time in 2017. The analyst said Microsoft is becoming the biggest cloud provider for the first time in 10 years, which would transition it from a “cloud laggard to a cloud leader.”
'Unmatched Product Depth and Breadth'
Bracelin said he came to this conclusion after conducting an analysis of the 60 biggest cloud computing companies. The analyst is predicting spending on cloud initiatives could explode to $239 billion in the span of five years, with the Redmond, Wash., software giant benefiting the most from the growth. Bracelin pointed to what he called “unmatched product depth and breadth" in software as a service, platform as a service and infrastructure as a service as the main reasons. (See also: Amazon, Microsoft Still Rule Cloud; Oracle, Alibaba May Catch Up.)
When Microsoft reported third-quarter earnings results in late April, it said revenue in its Intelligent Cloud business came in at $6.8 billion, up 11% compared to the year ago, and up 12% on a constant-currency basis. During the quarter, Microsoft said server products and cloud services revenue increased 15%, driven by Azure cloud revenue growth of 93%. Enterprise services revenue declined 1% with a decrease in customer support agreements offsetting growth in Premier Support Services and consulting.
For the quarter, Microsoft posted revenue of $23.6 billion on a non-GAAP bases and diluted earnings per share of $0.73, also on a non-GAAP basis. “Our results this quarter reflect the trust customers are placing in the Microsoft Cloud,” said Satya Nadella, chief executive officer at Microsoft. “From large multi-nationals to small and medium businesses to non-profits all over the world, organizations are using Microsoft’s cloud platforms to power their digital transformation.” This isn’t the first time the company has overhauled its business strategy in recent years. It has cut more than 4% of its employee headcount amid a restructuring being led by Nadella.