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Cloud services boost Microsoft's quarterly profits

Microsoft's chief executive Satya Nadella has been focusing on the company's cloud business
Microsoft's chief executive Satya Nadella has been focusing on the company's cloud business

Microsoft last night reported better-than-expected quarterly profit as demand for its cloud computing services for companies rose and its personal computer software business stabilised.

Microsoft's focus on fast-growing cloud applications and platforms is helping it beat slowing demand for personal computers that has hurt sales of Windows - the software that powered the company to the top in the 1990s. 

Under chief executive Satya Nadella, Microsoft's cloud business - which includes products such as Office 365, Dynamic 365 and the flagship Azure computing platform - has emerged as a major source of growth. 

Revenue from Microsoft's intelligent cloud business rose nearly 14% to $6.92 billion in Microsoft's fiscal first quarter, ended September 30. 

Analysts on average had expected $6.70 billion, according to financial data and analytics firm FactSet. 

Revenue from Azure, which competes with Amazon.com's Web Services and offerings from Alphabet Google, IBM and Oracle, grew 90% compared to a 97% growth rate in the preceding quarter. 

Azure's strong performance helped lift the gross margin at Microsoft’s cloud business to 57%, Stephanie Rodriguez, director of investor relations for Microsoft, said. 

Microsoft said its commercial cloud annualised revenue run rate reached $20.4 billion in the quarter. In 2015, Nadella set a target of $20 billion in cloud revenue by 2018. 

Revenue from Microsoft's personal computing division, its largest by revenue, fell 0.2% to $9.38 billion but handily beat analysts' estimate of $8.81 billion. 

The unit includes Windows software, Xbox gaming consoles, online search advertising and Surface personal computers. 

After two quarters of declining Surface revenue in a row, Microsoft notched a 12% year-over-year increase in revenue for its tablets and laptops in the latest quarter, helped by the release of a new Surface in May. 

Microsoft also benefited from a 13% year-over-year increase in revenue from Dynamics, its enterprise and sales software business which competes with Salesforce.com.

The technology company, based in Redmond, Washington, reported net income of $6.58 billion, or 84 cents per share, up from $5.67 billion, or 72 cents per share, a year earlier. 

Revenue rose 12% to $24.54 billion. 

Microsoft's shares had risen nearly 27% so far this year.