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Satya Nadella’s biggest bet for Microsoft could be its future

AP Photo/Rafiq Maqbool
CEO Satya Nadella
  • Dave Gershgorn
By Dave Gershgorn

Artificial intelligence reporter

Published Last updated This article is more than 2 years old.

Microsoft’s cloud computing business continues to be a rising star, with revenue growing 11% to $6.8 billion in its Q3 2017 from a year earlier.

That growth was a welcome sight as the company’s largest revenue stream—the Windows operating system and gaming—declined for the third consecutive quarter. Microsoft reported $22.1 billion in overall revenue, which just missed analyst’s expectations. Microsoft shares tumbled in after hours trading.

These results included LinkedIn’s first full quarter as a Microsoft company. The professional social networking site brought in $975 million in revenue for the quarter, but produced an overall $386 million loss. Microsoft acquired LinkedIn, which now has 500 million members, for $26.2 billion.

One area of continued strength within cloud is Microsoft’s Azure platform, which gives developers paid access to Microsoft’s artificial intelligence algorithms for use in their own software. Azure revenue, nestled within the $6.8 billion of “Intelligent Cloud” revenue, jumped exactly 93% year over year for the second quarter in a row.

Revenue from Microsoft’s line of tablets and desktop computer, Surface, decreased 26% YoY. Its latest computer, the Surface Studio, was announced in October 2016, and has only started to roll out in large numbers this year. These preliminary numbers don’t give great hope that the computer, geared toward artists and power users, will save Microsoft’s hardware business.

Of course, that just puts even more pressure on Azure and the enterprise cloud business to prop up Microsoft—and suggests that CEO Satya Nadella could be right in shifting the company’s focus toward the cloud. But it will be an uphill battle: Amazon and Google are fierce competitors in the space, with Amazon enjoying a large lead.

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