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Microsoft posted revenue of $24.5 billion, up 12 percent, and profits of $6.6 billion, or 84 cents per share, exceeding Wall Street’s expectations by 12 cents per share in the September quarter as the technology giant’s cloud business surpassed a major revenue milestone.

As part of the release, Microsoft said its annual run rate in its commercial cloud business reached $20.4 billion for the quarter, reaching a key goal for its cloud business three quarters ahead of schedule.

Microsoft shares are up more than 3 percent in after-hours trading.

Analysts polled in advance expected Microsoft to report earnings of 72 cents a share, unchanged from the year-ago quarter, on revenue of $23.56 billion, up from $22.33 billion a year ago, according to Yahoo Finance.

  • In the company’s Productivity and Business Processes division, which includes Office 365, revenue rose 28 percent to $8.2 billion.
  • Intelligent Cloud revenue was up 14 percent to $6.9 billion, with Microsoft citing factors including a 90 percent increase in Azure cloud revenue.
  • Revenue in the company’s More Personal Computing division, which includes its Windows PC business, was flat at $9.4 billion for the quarter.

Microsoft started rolling out the Windows 10 Fall Creators Update on Oct. 17, the fourth major Windows 10 update. The latest Windows 10 brings new 3D, mixed reality, gaming and photo/video features. The release came after the end of the latest quarter, but Windows updates are much more frequent nowadays anyway, and no longer tend to have a dramatic impact on Windows PC sales as they did in years and decades past.

Revenue in the company’s Surface hardware business rose to $1.037 billion, up from $926 billion, thanks to Surface Laptop sales, the company said.

Microsoft recently reiterated that smartphone hardware is no longer a primary focus for the company. The company did unveil a new Surface Book 2 last week, but that won’t be released until Nov. 16 and therefore didn’t have an impact on sales in the most recent quarter.

Separately, Microsoft has been pulling out of some key consumer technology businesses, most recently acknowledging that it will no longer be making Kinect motion-sensing cameras for its Xbox One game console. The company’s new Xbox One X console is slated for release on Nov. 7.

Updated at 2:30 p.m. with additional numbers. Here is Microsoft’s full earnings release.

Earnings Release FY18 Q1

Microsoft Cloud Continues to Grow, Powers First Quarter Results

Commercial cloud annualized revenue run rate reaches $20.4 billion

REDMOND, Wash. — October 26, 2017 — Microsoft Corp. today announced the following results for the quarter ended September 30, 2017:

  • Revenue was $24.5 billion and increased 12%
  • Operating income was $7.7 billion and increased 15%
  • Net income was $6.6 billion and increased 16%
  • Diluted earnings per share was $0.84 and increased 17%

“This quarter we exceeded $20 billion in commercial cloud ARR, outpacing the goal we set just over two years ago,” said Satya Nadella, chief executive officer at Microsoft. “Our results reflect accelerating innovation and increased usage and engagement across our businesses as customers continue to choose Microsoft to help them transform.”

Microsoft returned $4.8 billion to shareholders in the form of share repurchases and dividends in the first quarter of fiscal year 2018. During the quarter, the company announced an 8% increase in its quarterly dividend to $0.42 per share.

“Our strong start to the fiscal year reflects the impact of our continued investment in product innovation and sales capacity to capture expanding market opportunities,” said Amy Hood, executive vice president and chief financial officer at Microsoft.

Revenue in Productivity and Business Processes was $8.2 billion and increased 28% (up 28% in constant currency), with the following business highlights:

  • Office commercial products and cloud services revenue increased 10% (up 10% in constant currency) driven by Office 365 commercial revenue growth of 42% (up 42% in constant currency)
  • Office consumer products and cloud services revenue increased 12% (up 10% in constant currency) and Office 365 consumer subscribers increased to 28.0 million
  • Dynamics products and cloud services revenue increased 13% (up 12% in constant currency) driven by Dynamics 365 revenue growth of 69% (up 69% in constant currency)
  • LinkedIn contributed revenue of $1.1 billion during the quarter

Revenue in Intelligent Cloud was $6.9 billion and increased 14% (up 13% in constant currency), with the following business highlights:

  • Server products and cloud services revenue increased 17% (up 17% in constant currency) driven by Azure revenue growth of 90% (up 89% in constant currency)
  • Enterprise Services revenue increased 1% (0% in constant currency) with growth in Premier Support Services offset by declines in custom support agreements

Revenue in More Personal Computing was $9.4 billion and relatively unchanged (down 1% in constant currency), with the following business highlights:

  • Windows OEM revenue increased 4% (up 4% in constant currency), ahead of the overall PC market
  • Windows commercial products and cloud services revenue increased 7% (up 6% in constant currency) driven by annuity revenue growth
  • Search advertising revenue excluding traffic acquisition costs increased 15% (up 15% in constant currency) driven by higher revenue per search and search volume
  • Surface revenue increased 12% (up 11% in constant currency) driven by sales of the new Surface Laptop
  • Gaming revenue increased 1% (0% in constant currency) with Xbox software and services revenue growth of 21% (up 20% in constant currency) offset by lower hardware revenue
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