Microsoft’s cloud business is kicking it

The majority of Microsoft's capital expenditures in its cloud build-out is for server equipment. (Getty Images)

Microsoft yesterday reported revenue of $33.72 billion for its fiscal fourth quarter 2019, an increase of 12% compared to the same quarter the previous year, beating Wall Street estimates. Microsoft stock is trading up about 2% today.

The company’s cloud business includes Azure as well as cloud-based versions of Microsoft’s Office suite of software. And, although Microsoft does not report exact revenue amounts for Azure, it said Azure revenue grew 64% in the latest quarter compared to the previous year. While 64% is commendable, it does indicate a slowdown in growth compared to previous quarters.

Microsoft CFO Amy Hood said Azure and the newer focus of cloud-based subscriptions to Microsoft Office are complementing each other. She said the company is having more conversations with customers around Azure and “rethinking their digital transformation plans with us — it opens up a very large conversation around the value Microsoft 365 can bring as people go through and think about those transitions,” according to a Seeking Alpha transcript.

She said enterprises are often extending their prior commitments to Office 365 and including Azure contracts. “When that happens, it's almost like you’re adding new products and new value,” said Hood.

Microsoft CEO Satya Nadella said on the call with investors, “We are building Azure as the world's computer, addressing customers’ real-world operational sovereignty and regulatory needs. We’ve 54 data center regions, more than any other cloud provider. And, we were the first in the Middle East and in Africa.”

Asked about the company’s build-out of data centers related for its cloud business, Hood said, “The majority of our capital expenditures is actually in server equipment. It's new capacity. It's not necessarily in the overall geo footprint build out. We will of course continue to do that where it makes sense and where opportunity presents itself. But the majority of the investment today is continuing to build capacity inside existing incredibly large data centers.”

Nadella also called out new cloud-to-the-edge services, including Azure Data Box Edge and Azure Stack HCI. He said Azure Sphere is a first-of-a-kind edge solution to secure the more than 9 billion micro-controller unit-powered endpoints coming online each year.

RELATED: AT&T teams up with Microsoft on cloud, edge, AI, 5G

Earlier this week AT&T announced a broad cloud alliance with Microsoft that includes AI and 5G. The multi-year alliance includes Microsoft being named as AT&T's preferred cloud provider for non-network applications as part of the telco's broader "public cloud first" strategy. Microsoft also will throw its support behind AT&T's efforts to consolidate its data center infrastructure and operations.