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Microsoft's latest earnings report shows the company is moving in the right direction as it adapts to a post-PC world.
The software maker on Thursday reported that profit soared 51% year over year in the quarter ended Sept. 30, to $5.4 billion, on revenue that grew 25%, to $16.2 billion. Microsoft's stellar performance was driven by its long-time workhorses Office and Windows, which dominate their respective markets.
However, pocketing cash from its legacy products is not what's impressing Wall Street and industry analysts. The optimism is driven by the speed with which Microsoft is moving to the cloud. Rather than try to convince customers that the PC remains the center of the tech universe, Microsoft has chosen rightly in letting other companies, such as Google, Amazon.com and Salesforce.com, educate the world about cloud computing, and then deliver the tools customers need to enter the emerging paradigm.
"They waited for the enterprise to adopt the idea, and then came out with their own products," Jillian E. Mirandi, analyst for Technology Business Research, told InformationWeek.
Microsoft customers appear interested. The number of subscriptions for Windows Azure, Microsoft's platform for customers to build and deploy applications in the cloud, grew 40% last quarter, when compared with the previous quarter. Overall, the number of business customers licensing the company's cloud services has more than tripled in the last year, Microsoft reported.
Investors rewarded Microsoft for its latest earnings report by driving shares up 4% before the markets opened on Friday. In addition, Oppenheimer & Co. has raised its price target on Microsoft to $32 from $30 a share, citing the company's success in building a cloud presence.
Microsoft's lucrative Office and Windows franchises present solid platforms for launching into the cloud. Most people and businesses use the products and are willing to follow Microsoft as it migrates their functionality to the cloud. "The cost will be cheaper, because customers will have access to all of those tools, as opposed to buying separate licenses," Mirandi said.
While Microsoft's cloud strategy is strong, the company is still struggling to find a winning game plan to drive Windows into mobile devices, particularly the emerging markets for smartphones and tablets. The company is scheduled to release Windows Phone 7 next month and is boasting broad support from carriers and manufacturers worldwide.
Nevertheless, Gartner predicts that Microsoft's share of the smartphone OS market will remain in the low single digits through 2014, eclipsed globally by Google's Android and Symbian. However, Microsoft says it's committed to slugging it out for share in the long term.
"Make no mistake about it, when it comes to Windows Phone, we're all in," Microsoft Chief Executive Steve Ballmer told attendees of the company's Professional Developers Conference Thursday.