Surface revenue was also strong, up 38 percent year on year.
Microsoft posted revenue of $20.5 billion in the first quarter of its 2017 financial year, a negligible rise on the same quarter last year. Operating income was $5.2 billion, down 8 percent year on year, net income was $4.7 billion, down 4 percent, and earnings per share were $0.60, down 2 percent.
As ever, Microsoft also offered alternative figures that book Windows 10 revenue up front instead of amortized over several years. Using that regime for both this year and last, revenue was up 3 percent at $22.3 billion, operating income was flat at $7.1 billion, net income up was up 6 percent at $6.0 billion, end earnings per share were up 9 percent at $0.76.
The company continued to cite negative impact on foreign earnings due to the strength of the US dollar; at constant exchange rates everything looks rosier.
As is ever the case, the highlight comes from Microsoft's various cloud endeavors, where growth is significant, even as other parts of the business struggle due to weak PC demand. The company now claims that its commercial cloud annualized run rate has passed $13 billion (it was $12.1 billion last quarter), and that the gross margin of its commercial cloud business is up 7 points quarter-on-quarter to 49 percent. Nonetheless, the company still doesn't give a detailed breakdown of its cloud revenue or expenditure, so getting true insight is a little hard.
Microsoft currently has three reporting segments: Productivity and Business Processes (covering Office, Exchange, SharePoint, Skype, and Dynamics), Intelligent Cloud (including Azure, Windows Server, SQL Server, Visual Studio, and Enterprise Services), and More Personal Computing (covering Windows, hardware, and Xbox, as well as search and advertising).
Productivity segment revenue was up 6 percent to $6.7 billion, on the back of a strong performance by Office 365. Operating income was down 1 percent to $3.1 billion. Both commercial and consumer Office revenue increased, by 5 and 8 percent respectively. Commercial 365 seats were up 40 percent year on year, and consumer seats now number 24 million.
The Intelligent Cloud segment was up 8 percent to $6.4 billion, with operating income down 14 percent to $2.1 billion. Both server-and-cloud and Enterprise Services revenue grew, by 11 percent and 1 percent respectively. Azure revenue is up 116 percent year on year, with compute usage more than doubling. Microsoft's cloud platform is continuing to grow fast, albeit at a rate that betrays that the level of usage is still relatively low; year-on-year doubling is the kind of thing that only small products can tend to enjoy.
More Personal Computing continued to show remarkable resilience even as the PC market fares poorly. Revenue was down 2 percent to $9.3 billion, due to a 72 percent decline in phone revenue (thanks to collapsing market share) and 5 percent fall in Xbox revenue (due to price cuts and lower sales). Operating income, however, was up 26 percent to $1.9 billion, and there were some bright spots: Windows OEM Pro revenue (generally indicative of commercial PC sales) was up 1 percent, and non-Pro revenue fell only 1 percent, outperforming the consumer PC market. Surface revenue was also substantially up, increasing 38 percent, primarily an artifact of the availability of the Surface Pro 4 and Surface Book today, but no corresponding products a year ago. Search revenue was also up, rising by 9 percent thanks to a combination of both more searches and more revenue per search.
At various times, Microsoft's critics have said that both Bing and Surface should be cancelled. Both now look to be reasonably well established businesses; Bing is claimed to be profitable, and while Surface's finances are murkier it appears at the very least that Microsoft is building it into a strong brand that is showing some ability to influence the broader PC market.