FILE - In this Jan. 21, 2015, file photo, Microsoft CEO Satya Nadella speaks at an event demonstrating the new features of Windows 10 at the company's headquarters in Redmond, Wash. When Chinese President Xi Jinping arrives in Washington state on his way to the other Washington (Washington, D.C.), he’ll be visiting the American state that does more business with his country than any other. Washington companies sold China more than $20 billion in products last year, from airplanes to wheat and apples. (AP Photo/Elaine Thompson, File)
Photograph by Elaine Thompson — AP

Microsoft’s Cloud Continues to See Sunny Days

Jan 29, 2016

Investors seem unconcerned about Microsoft's declining revenue. As long as its cloud computing business shows progress, the company's future is sunny in their eyes.

The technology giant said on Thursday that overall sales declined 10% in the latest quarter ending Dec. 31 to $23.8 billion. However, its 78 cents per share profit, excluding certain costs, handily beat analyst expectations of 71 cents per share, setting the positive tenor for the traditional call with analysts

Nearly every one of them expressed enthusiasm for Microsoft’s cloud business unit, a hodgepodge of different business-focused products including the Azure cloud computing platform, mobile device tracking services, and data analytics. That unit brought in $6.3 billion in sales during Microsoft’s second quarter, a 5% year over year increase and a 6.8% jump from the $5.9 billion it recorded in the previous quarter.

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Some analysts have previously questioned Microsoft’s decision to lump all those products into one unit that it calls the “intelligent cloud.” Some of those products, like its server operating system, are older, but are now grouped with the newer and hotter services in the cloud unit.

However, Microsoft CEO Satya Nadella explained that the decision to create a bucket for cloud products makes sense because businesses typically want to buy a number of cloud products rather than just one. Additionally, some of these older products work in conjunction with the newer products and all contribute to a company's total technology infrastructure.

“We don’t think of servers as a distinct part,” said Nadella. “But it’s the edge of our cloud,” a reference to how certain software and services can be interchangeable between a customer's internal data center and the Microsoft cloud.

Microsoft and other tech giants like Hewlett Packard Enterprise (hpe) are betting their future on this so-called “hybrid cloud” model, in which a company’s infrastructure is spread across its own data centers as well as the data centers of cloud computing providers like Microsoft and Amazon.

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Additionally, Nadella explained that recent deals made with software companies like Red Hat (rht) and Oracle (orcl) to make their technology work with its own are just another way for Microsoft to expand its cloud business because more companies are able to tap into it.

“What the move to the cloud has done for us, it expanded the market opportunity we have had more than ever before,” said Nadella.

So far, investors seem to agree with Nadella.

Microsoft shares (msft) rose 4.2% to $54.25 in after hours trading on Thursday.

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