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July 20, 2016

Cloud boosts profits for Microsoft & SAP

News: Cloud growth is continuing for both companies.

By James Nunns

The results are in and it’s good news on the cloud front for both Microsoft and SAP.

Both companies reported their financial results overnight with SAP’s Q2 2016 results and Microsoft with its Q4 and full-year.

The biggest positive for Microsoft was clearly its Azure revenues; the cloud business boasted revenue up 102% year-on-year. In the area of “intelligent cloud”, which includes the Azure cloud platform and server software, revenue was up 7% to $6.7bn.

This does not mean that the cloud unit is bringing in that much money though as the cloud platform’s financials are mixed in with a number of different product offerings.

On the whole the annual run rate for cloud-related revenue stands at $12.1bn, up from around $8bn a year ago.

However, despite these positive numbers it is still struggling to increase profit in the cloud business. Operating profit was reported to fall 17% to $2.19bn in the quarter. The company said that this is due to higher research, development, sales and marketing costs as it invests.

Microsoft reported that its total revenues were down but profits were up. Total revenue reported in the past quarter was $20.6bn, down 7% from $22.2bn in Q4 last year. For the fiscal year total revenues stood at $85.3bn, down 9% from $93bn last year.

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In the personal computing section of the financial results, which includes Windows desktop editions, Xbox, Windows phones and Bing, the company reported revenues of $8.9bn, down 4% on Q4 for the previous year.

Device revenue during the quarter fell 35%, or $782m, with the phone segment dropping by $870m or 71%. On a positive note though Surface revenue increased by 9% or $76m.

Microsoft weren’t the only company to report favourable cloud figures as SAP posted a 73% rise in net profit for Q2 2016.

The company attributed this to zero restructuring costs in the first half of 2016, said Chief Financial Officer Luka Mucic, SAP. Restructuring costs actually came in at €22 million, compared with €418 million in the first half of 2015.

Operating profit for Q2 stood at €1.52bn while sales were €5.24bn. Software licenses rose by 10% to €1.04bn for the quarter.

Cloud subscriptions were up 30% to €721m year-over-year with new cloud booking up 31% to €255m yoy, cloud subscriptions and support backlog were reported at €3.7bn up 45% yoy.

Bill McDermott, CEO, SAP, said: “Our groundbreaking new architecture is accelerating momentum across all businesses – cloud, core, and business networks. As a result, SAP delivered a unique trifecta of double digit growth in software, cloud and operating income. Our S/4HANA pipeline has never been stronger and we confidently reiterate our full year guidance.”

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