While touting a string of recent major customer wins for the Azure cloud platform, Microsoft CEO Satya Nadella hinted that Amazon's push into new industries such as groceries and health care could be leading some customers to choose Azure over Amazon Web Services.
Recent Azure wins cited by Nadella include a three-year deal with grocer Albertsons, announced last week, and a five-year deal with retailer the Gap, announced in November. In recent months, customers including Walmart and Walgreens have also signed deals for Microsoft cloud offerings including Azure and Office 365.
Speaking during Microsoft's quarterly earnings call with analysts, Nadella was asked by J.P. Morgan analyst Mark Murphy whether Microsoft customer wins such as Albertsons and Walgreens are related to Amazon's moves into new territory.
"It's clear that [Microsoft has] fantastic alignment of our business model with the interests of our customers. In other words, we want to make sure we are, in fact, making our customers fully capable digital companies in their own right—whether they're in retail, whether they're in oil and gas, whether they're in health care. Because that's really what's in our long-term interest," Nadella said.
"And, of course, that means we have a trusted relationship, which is a competitive advantage," Nadella said. "In a world where some of our competitors have more complex business models—where in some cases they give their platforms [to customers] and other cases where they compete with them or tax them—that's definitely something that I'm sure our customers pay attention to."
Nadella didn't mention Amazon by name. Amazon has expanded its business into new verticals in recent years including groceries, with the acquisition of Whole Foods, and health care, with acquisitions such as prescription delivery service PillPack. Meanwhile, Amazon Web Services is the market-share leader in public cloud infrastructure and the only larger public cloud than Azure.
For Microsoft's second quarter of fiscal 2019, ended 31 December, intelligent cloud revenue jumped 20.4 percent to US$9.38 billion, up from US$7.79 billion the year before. The growth was fueled by a 76-percent spike in Azure revenue, while enterprise services rose 6 percent.
Microsoft's Cloud Solution Provider (CSP) program—which partners use to provide Azure and Office 365 to customers on a subscription basis—has been a key to the growth, Microsoft executives have said.
During the quarterly call, Nadella also highlighted Microsoft's co-selling program, which gives special incentives to the company's salespeople to work more closely with solution providers. Introduced 18 months ago, the co-selling program has generated US$8 billion in contracted partner revenue, Nadella said.
During the fiscal second quarter, Microsoft's productivity and business processes segment hit US$10.1 billion, climbing 12.8 percent from US$8.95 billion year-over-year.
Dynamics 365, the combination cloud CRP and ERM system, surged 51 percent, while Office 365 commercial revenue was up 34 percent. LinkedIn revenue rose 29 percent.
Microsoft's personal computing segment saw more modest growth of 6.7 percent, reaching US$12.99 billion in revenue, compared to US$12.17 billion during the same period a year earlier.
The segment was hampered by a 5-percent decline in Windows OEM revenue—which Microsoft CFO Amy Hood attributed to CPU supply constraints. Intel's CPU shortage has been impacting PC shipments since at least September. The shortage "constrained an otherwise healthy PC ecosystem," Hood said during the quarterly call Wednesday.
However, sales of Surface devices jumped 39 percent during Microsoft's fiscal Q2, while gaming revenue rose 8 percent.
During Microsoft's fiscal Q2, overall revenue rose 12.3 percent to reach US$32.47 billion. That's up from US$28.92 billion during the same period a year earlier.
Microsoft did fall slightly short of Wall Street expectations of US$32.51 billion in second-quarter revenue, leading the company's stock price to drop 3.17 percent, to US$102.67, in after-hours trading on Wednesday.
Quarterly net income on a GAAP basis came in at US$8.42 billion, or US$1.08 per diluted share. That's compared to a net loss of US$6.3 billion—or a net loss of 82 cents per diluted share—during the same quarter a year ago, which stemmed largely from a tax on repatriation of money held overseas.