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April 22, 2016updated 05 Sep 2016 10:48am

Microsoft and Google miss expectations as cloud growth slows

News: Google remains heavily reliant on advertising while Microsoft grows its cloud slower than the previous quarter.

By James Nunns

Microsoft missed expectations in a mixed set of results from the company’s third-quarter earnings.

Revenue for Microsoft was $20.5bn, down 6% over the last year with revenue from its Productivity and Business Processes unit growing by 1% to $6.5bn. Sales of Microsoft Office products and cloud services for business grew by 7% in constant currency driven by Office 365 revenue growth of 63% year-over-year.

Further revenue growth was seen in dynamics products and cloud services which grew by 9% in constant currency year-over-year.

While the company’s cloud services and Office 365 revenues grew at a decent rate, the revenue from Intelligent Cloud, which houses the Azure cloud, only grew revenue by 3%, up 8% in constant currency, to $6.1bn.

Despite Azure revenue growing by 120% in constant currency and usage of both Azure Compute and Azure SQL database more than doubling year-over-year, this is actually a decline from 140% growth from the last quarter.

CEO Satya Nadella said: "Azure saw double-digit growth for the seventh straight quarter. It remains clear we are one of the two leaders in the market."

As part of the same division, Microsoft doubled its enterprise mobility customers to 27,000, with a near four-fold increase in buyers over the past 12 months.

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One slower quarter of Azure adoption does not indicate a trend of decline, but given the company’s increased push of its cloud products this will come as somewhat of a disappointment.

Google, which is ranked third in the public cloud market, has also spent a considerable amount of money in building its cloud image.

Google’s parent company Alphabet reported its Q1 2016 financial results which saw a 17.3% jump in total sales to $20.3bn, excluding the costs of acquiring traffic, Alphabet reported sales of $16.5bn, below the $16.6bn estimate of analysts. Net profits rose 20% to $4.2bn and operating income of $6.3bn.

Despite increased revenues and income, the company saw its shares fall after it missed earnings targets.

The ‘other bets’ side of the company lost $802m on an operating income of $166m, with the finger being pointed at the cost of laying cable for the its Google Fiber service.

Of the $20bn revenue, $18bn comes from the core Google business which brings in money from advertising revenues, $14.3bn of this comes from Google’s own websites.

The company played down the loss of the ‘other bets’ division: "We’re thoughtfully pursuing big bets and building exciting new technologies, in Google and our Other Bets, that position us well for long-term growth," Said Ruth Porat, Alphabet CFO.

Despite an emphasis being placed on the ‘other bets’ side of the business, which includes the company’s cloud division, there is little sign of it making big in-roads into. The problem is that while Google has touted a change of focus to increase its cloud market share, the company doesn’t specifically report those figures, making it difficult for on-lookers to truly gauge how well it is doing.

Google may have picked up some new big name companies to add to its cloud client list but it still looks a distance from challenging Microsoft, let alone AWS.

AWS is due to announce its first quarter financial results on the 28th of April with onlookers eager to see whether it can maintain its speed of growth.

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