Microsoft released its quarterly financial results to general acclaim from the stock market which drove the shares seven percent higher after reporting slightly better than expected returns.
The market was applauding the continued shift to cloud services with income rising five percent in the company’s Intelligent Cloud division, however the decline in the company’s more traditional strengths of software licenses and devices saw earnings fall by eleven percent over the corresponding period last year.
More concerning for the company’s shareholders would be the profits that have fallen 23% which once again proves that cloud services are much less profitable than Microsoft’s traditional software business.
To make matters worse margins on cloud services are falling with returns from the division declining despite sales being up five percent. It’s not hard to see the effects of Amazon Web Services’ ruthless driving down of cloud service prices.
While Microsoft’s results are encouraging in that they show the company is continuing its evolution to a cloud services business, it’s clear the legacy products are still the key cash generators.
As of December 31, Microsoft has a 102 billion dollars in the bank so there’s little risk the company will be going broke soon however the company has to find a way to make better profits from its new business models.