Microsoft handily topped third quarter targets and said Azure delivered revenue growth of 33%. However, Microsoft said its cloud capacity in the fourth quarter will continued to be constrained.
The company reported third quarter net income of $25.8 billion, or $3.46 a share, on revenue of $70.1 billion, up 13% from a year ago.
Wall Street was looking for Microsoft third quarter earnings of $3.22 a share on revenue of $68.42 billion. Analysts were modeling Azure growth of about 30%.
During the quarter, Microsoft adusted its relationship with OpenAI. Microsoft CEO Satya Nadella said the company's cloud and AI units were enabling customers to drive growth while cutting costs.
Amy Hood, CFO of Microsoft, added that Microsoft Cloud saw strong demand across with third quarter revenue of $42.4 billion, up 20% from a year ago.
Hood said: "While we continue to bring data center capacity online as planned, demand is growing a bit faster, therefore we now expect to have some AI capacity constraints beyond June."
Nadella said Microsoft will continue to invest heavily in infrastructure but will adjust buying as needed.
"The key thing for us is to have our bills and the position for what is the workload growth of the future. There's a demand part to it. There is the shape of the workload part to it, and there is a location. You don't want to be upside down on having one big data center in one region when you have a global demand footprint. You don't want to be upside down when the shape of demand changes.
"We just want to make sure we're building accounting for the latest and greatest."
Hood said she was hoping cloud demand and supply were in balance by the end of Microsoft's fourth quarter. "We are going to be a little short, still safe, but a little tight as we exit the year," she said.
By the numbers:
- Microsoft's third quarter revenue in the productivity and business processes unit was $29.9 billion, up 10% from a year ago.
- Microsoft 365 Commercial products and cloud services revenue was up 11%.
- 365 Consumer products and cloud services revenue was up 10%.
- LinkedIn revenue in the third quarter was up 7%.
- Dynamics sales were up 11% in the quarter.
- Intelligent Cloud revenue was $26.8 billion, up 21% from a year ago.
- Windows OEM and Devices revenue was up 3% as Microsoft's More Personal Computing unit delivered third quarter revenue of $13.4 billion, up 6%.
On a conference call, Nadella said the following:
- Microsoft opened 10 data centers in 10 countries across four continents.
- Model capabilities are doubling in performance every six months.
- Microsoft continues to optimize infrastructure. "You see this in our supply chain, where we have reduced lead times for new GPUs by nearly 20% across our blended fleet," said Nadella. "We have increased AI performance by nearly 30% and cut our cost per token."
Constellation Research analyst Holger Mueller said:
"Microsoft had another good quarter, with all its divisions growing. Even the often lukewarm and challenged Windows / OEM business grew. Interesting enough LinkedIn has fallen into single digits growth as well, which is interesting as Talent Acquisition remains central and important for enterprises. Microsoft is on track to bring operating income to 50% of revenue – if all goes well in its closing quarter."
Here's a look at the outlook.
