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Services Boom Lifts Microsoft Through Hardware Slump

Microsoft’s latest earnings report has seen the company breeze past analysts’ projections, bringing in revenue of $26.1 billion and a net income of $6.5 billion.

Despite slipping Xbox revenues and minor losses from LinkedIn, the company’s fortunes were bolstered by impressive growth for its Azure and Office cloud-computing services.

“Our customers are seeing greater value and opportunity as we partner with them through their digital transformation,” Microsoft CEO Satya Nadella said in a statement.

Analysts had originally pegged Microsoft to bring in $25.3 billion in revenue.

“Accelerating advancements in AI across our platforms and services will provide further opportunity to drive growth in the Microsoft Cloud,” he said.

The biggest performer here was Azure, which grew 93% in revenue – double the previous quarter.

The company say they expect it to bring in $20 billion annually by 2018.

Microsoft’s PC division declined 5 percent to $11.8 billion.

Meanwhile, products and services grew 8 percent to $6.9 billion and server products and cloud services revenue grew 12 percent, balancing some of Microsoft’s hardware losses.

Within that, the company’s Xbox sub-division reported a slip in growth of 3%, reaching revenues of $3.5 billion for the quarter.

Microsoft has indicated that reduced pricing for the Xbox pricing and flagging demand pushed consoles sales down.

However, “Xbox software and services revenue grew 18 percent with digital transactions reaching $1 billion this quarter from continued adoption of digital distribution and a strong game lineup,” reads a note from Microsoft to investors.

Surface revenue decreased 2%, from $1.35 billion in Q2 2016 to $1.32 billion in Q2 2017, while phone revenue declined 81%.

Meanwhile, products and services grew 8% to $6.9 billion and server products and cloud services revenue grew 12%, balancing some of Microsoft’s hardware losses.

Office and Office 365 also helped, cumulatively growing 10% to $7.4 billion in revenue.

Notably, corporate versions of Office 365 saw an increase in sales of 47%.

Finally – LinkedIn, which accounts for less than 1% of the company’s revenues, managed to generate $228 million in revenue but also cost Microsoft $100 million in net income.

The professional social media network, which was bought by Microsoft for approximately $26 billion, generated over triple that amount in the previous year’s quarter.

Microsoft say LinkedIn’s membership grew 18% to 467 million during the quarter.

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