Microsoft Sales Get Azure Boost While Tax Charge Causes Net Loss

Microsoft topped analysts’ estimates for second-quarter revenue, helped by brisk quarterly growth in its cloud and corporate-software businesses, while a tax charge caused the company to report a net loss, according to Bloomberg.

The company took a $13.8 billion charge related to taxes owed on overseas cash, a result of recent changes to U.S. tax law. The net loss in the second quarter, which ended Dec. 31, was $6.27 billion, or 82 cents a share, Microsoft said in a statement.

Sales of Azure cloud-computing services almost doubled as businesses increasingly seek to run applications and store data in Microsoft’s data centers. Excluding the charge, second-quarter profit was 96 cents, compared with an average analyst projection of 86 cents. Sales in the quarter climbed 12 percent to $28.9 billion, exceeding the average analyst estimate of $28.4 billion.

Growth in Azure was slightly faster than in both the previous quarter and the year-earlier period. Analysts and investors following Microsoft have wondered if Azure’s growth would begin to trail off as the overall revenue number gets larger. "I do, in general, expect our strong performance in Azure to continue," CFO Amy Hood said.

In the second quarter, commercial cloud sales rose to $5.3 billion, a gain of 56 percent from $3.4 billion in the year-earlier quarter. Gross margin for that business widened to 55 percent, up 7 points compared with a year earlier. Total revenue in the company’s More Personal Computing division, which includes the Windows operating system, was $12.2 billion.

Revenue from Surface hardware was little changed from a year ago, and gaming revenue rose 8 percent, fueled by the release of the high-end Xbox One X console. Productivity sales, mainly Office software, climbed 25 percent to $8.95 billion. Analysts had estimated $8.86 billion.

For the fiscal third quarter, the company forecast More Personal Computing revenue of as much as $9.4 billion, and up to $8.8 billion for the productivity unit. Intelligent Cloud, which consists of Azure and server software, will post sales of as much as $7.75 billion, Hood said on the call.

As of June 30, almost $128 billion of the Microsoft’s cash and short-term investments were held overseas. In December, Congress passed a sweeping tax overhaul that scrapped a previous system that let companies defer U.S. income taxes on foreign earnings until they returned that income to the U.S. Now companies will have to pay taxes on accumulated foreign income.  Hood declined to say how much cash Microsoft would bring back to the U.S., or when, or what the company might do with it.