Forget about mobile phones. The key to Microsoft's transformation is the enterprise market.

Forget about mobile phones. The key to Microsoft's transformation is the enterprise market.

  Microsoft's mobile phone business fell 71% ($870 million) in the last quarter, which significantly dragged down its revenue, but is this important? It is an indisputable fact that Microsoft has given up its mobile phone business. The market is more concerned about the growth of Microsoft's cloud services and its performance in the enterprise market.

What aspects of a company's financial report does the market focus on? For Apple and Google , the market focuses on iPhone sales and search business revenue, because these two businesses are the dominant cash cows of Apple and Google, and their performance almost determines the overall performance. But for Microsoft, which is in transition, the market is most concerned about the progress of the transition business, that is, the growth of cloud services, which is more important than the previous two cash cows, Windows and Office.

In other words, the market cares about whether Nadella can continue to promote the "cloud and mobile first" strategy and transform Microsoft into a cross-platform cloud service giant. Microsoft's revenue and net profit have been stagnant or even slightly declining in the past two fiscal years. But at the same time, Microsoft's stock price has accumulated a 30% increase.

This is also the main reason why Microsoft's stock price rose more than 4% after the release of its financial report today. On the one hand, it is because the revenue and profit of the quarter are higher than market expectations, and on the other hand, the cloud service has performed well, making the market more optimistic about Microsoft's transformation. Given that the PC market has been in a slump for many years, the market does not have high expectations for the performance of Windows business revenue.

According to the non-GAAP financial indicators that the market pays attention to, in the second quarter of this year (the fourth quarter of fiscal year 2016), Microsoft's revenue was $22.64 billion, compared with $22.2 billion in the same period last year; net profit was $5.5 billion, and earnings per share were 69 cents, compared with 62 cents in the same period last year. Analysts on average expected Microsoft's revenue for the quarter to be $22.1 billion and earnings per share to be 58 cents.

The main purpose of non-GAAP standards is to measure the continuing operations of the main business, and Wall Street analysts' performance expectations are also based on this indicator. According to the explanation of Microsoft's investor relations department, the GAAP performance of the quarter also includes Microsoft's layoffs and restructuring of the mobile phone business and the impact of deferred revenue from Windows 10. If based on GAAP standards, Microsoft's revenue for the quarter was US$20.6 billion and earnings per share were 39 cents. In the same period last year, revenue was US$22 billion and losses per share were 40 cents. In the same period last year, Microsoft recorded US$7.5 billion in expenses to write off Nokia assets, resulting in a huge loss of US$3.2 billion in the quarter.

Microsoft divides its business into three major divisions: the Productivity and Business Process Division, which includes products such as Office and Office 365; the Intelligent Cloud Division, which includes cloud service businesses such as Azure and servers; and the Personalized Computing Division, which includes the Windows operating system, Bing search, and hardware device products such as Surface and Xbox.

It can be clearly seen from the above figure that the business that has been growing steadily for Microsoft in the past two years is the intelligent cloud department. The productivity and business process department has not grown again until the last two quarters, and the personalized computing department has continued to decline, which is obviously the impact of the years of decline in the PC market and Microsoft's failure in the mobile phone field, especially the mobile phone business, which has continued to decline sharply.

Last quarter, the intelligent cloud business revenue was $6.7 billion, and the 7% growth was also the best performance in the past year, especially the 102% growth of Azure revenue. This is also the biggest highlight of Microsoft's financial report. In the field of cloud services, although there is still a clear gap with Amazon AWS, Microsoft Azure has maintained rapid growth. Azure's growth exceeded analysts' previous expectations of 93%.

Microsoft's commercial cloud services include the Office 365 business in addition to the Intelligent Cloud Division. In the quarter, the revenue of Office 365 enterprise users increased by 54%, and the consumer user base increased to 23.1 million. While Office 365 grew rapidly, the productivity and business division also grew slightly by 5% to US$7 billion.

There is no doubt that Azure and Office 365 are the businesses that Nadella is most concerned about at present, and they are also the core of the transformation strategy. Among the Fortune 500 companies in the world, 85% of them have chosen Microsoft's cloud services. Microsoft's Azure continues to attract large enterprise users. However, Amazon AWS has a clear advantage in the small and medium-sized enterprise market.

In other words, the enterprise market is the key factor in determining whether Microsoft's transformation can be successful.

Several recent developments also reflect Microsoft's expansion in the enterprise market. At last week's WPC (Microsoft Worldwide Partner Conference), Facebook announced that it would deploy Office 365 services throughout the company. Microsoft also reached a cooperation with Boeing to transfer Boeing's digital aviation data to Azure. SAP , a software service giant in the enterprise market , also announced that its applications and data will be transferred to Microsoft's Azure cloud.

The acquisition of LinkedIn, a professional social networking site, for $26.2 billion is also intended to expand the enterprise market and allow LinkedIn's enterprise services to work together with Microsoft's enterprise services. However, the impact of this acquisition on Microsoft's financial report will not be reflected until the next quarter.

An important goal of Nadella's transformation of Microsoft is to achieve an annualized revenue of $20 billion for Microsoft's commercial cloud business in 2018. According to this indicator, the annualized revenue of Microsoft's commercial cloud business in the quarter was $12.1 billion, a significant increase from $9.4 billion in the third fiscal quarter. At this growth rate, Microsoft is still expected to achieve its goal in 2018.

But on another indicator, Microsoft's performance target may not be achieved. Microsoft previously announced that it would reach 1 billion Windows 10 devices by June 2018. But last month, Microsoft admitted that this goal might not be achieved as scheduled. The personalized computing department where Windows is located also continued its downward trend in revenue, falling 4% to $8.9 billion this quarter. This is still Microsoft's biggest cash cow.

At first glance, it seems that the decline in the PC market has dragged down this department. IDC data shows that global PC shipments fell 4.5% in the second quarter of this year. But if you look closely at the several businesses of this department, Windows OEM is actually growing. Among them, enterprise business revenue increased by 2% and consumer revenue increased by 27%. And contrary to the decline in the PC market, Microsoft's own PC hardware Surface revenue still increased by 9%. It is worth mentioning that Microsoft is also actively promoting the application of Surface in the enterprise market. Microsoft announced at WPC that it will provide surface rental services to corporate users, along with Office 365 and Windows 10 services.

Looking at other businesses in this department, Xbox monthly active users increased by 33%, and search advertising revenue excluding traffic acquisition costs increased by 16%. Perhaps it can be found that the only poor performance is the mobile business department. The revenue decline of 71% in the quarter (revenue reduction of US$870 million) is the main reason for the decline in revenue of the personalized computing department. Considering that in May this year, Microsoft laid off 1,850 employees in the mobile business and recorded restructuring expenses of US$950 million. In fact, Microsoft has given up this business revenue.

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.

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