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Cloud, Hardware Drive Record Microsoft Revenue

Microsoft has taken a lot of heat for unpopular Windows releases and less-than-hip tablet roll outs, but apparently Redmond is doing plenty right. The company on Thursday announced $4.54 billion in net income, or 54 cents per share in earnings, on revenue of $23.2 billion for the third quarter, outpacing its competition. Cloud strength and hardware sales helped buoy the firm’s record earnings.

The good financial news comes in despite the $1.14 billion of expenses connected to Microsoft’s restructuring plan announced in July 2014 and the ongoing integration of the Nokia Devices and Services business.

“We are innovating faster, engaging more deeply across the industry, and putting our customers at the center of everything we do, all of which positions Microsoft for future growth,” said Satya Nadella, CEO of Microsoft. “Our teams are delivering on our core focus of reinventing productivity and creating platforms that empower every individual and organization.”

Commercial Revenue Also Rises

On the commercial side, revenue grew 10 percent to $12.28 billion. Server products and services revenue increased 13 percent, with double-digit growth for SQL Server, System Center and Windows Server. Office Commercial products and services revenue grew 5 percent as customers transition to Office 365.

Microsoft’s commercial cloud revenue grew 128 percent, driven by Office 365, Azure and Dynamics CRM. Lync, SharePoint and Exchange, the firm’s productivity server offerings, collectively grew double-digits. And Windows volume licensing revenue increased 10 percent.

It’s too soon to discern the impact of Microsoft’s Mojang acquisition in September. Redmond grabbed the popular casual gaming brand, maker of Minecraft, for $2.5 billion. The Mojang team will join Microsoft Studios, which is also home to global blockbuster franchises Halo, Forza and Fable. Microsoft said it plans to make investments in cloud and mobile technologies to make the Minecraft experience even better. But Microsoft continues doing well with gaming and may continue looking for strategic buys.

“Gaming is a top activity spanning devices, from PCs and consoles to tablets and mobile, with billions of hours spent each year,” Nadella said. “Minecraft is more than a great game franchise — it is an open world platform, driven by a vibrant community we care deeply about, and rich with new opportunities for that community and for Microsoft.”

Consumer Revenue Grows 47 Percent

Let’s take a closer look at what’s driving the wins. For starters, devices and consumer revenue grew 47 percent to $10.96 billion in the quarter. Office 365 Home and Personal subscribers totaled more than 7 million, representing more than 25 percent sequential growth over the previous quarter.

Meanwhile, Surface Pro 3 momentum drove $908 million in revenue and total Xbox console sales grew 102 percent to hit 2.4 million as Xbox One launched in 28 new markets. For its part, phone hardware revenue exceeded $2.6 billion with ongoing focus on execution discipline.

“We delivered a strong start to the year, with continued cloud momentum and meaningful progress across our device businesses,” said Amy Hood, executive vice president and Microsoft’s CFO. “We will continue to invest in high-growth opportunities and drive efficiencies across the organization to deliver long-term shareholder value.”

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