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Microsoft beats fiscal Q2'17 on 'stabilizing' PC business, cloud expansion

Microsoft Corp. saw a strong second fiscal quarter, coming in ahead of expectations on several metrics, driven largely by a rapidly expanding cloud business.

The company on Jan. 26 reported a notable beat on earnings, with net income clocking in at $5.20 billion, or 66 cents per share, compared to $5.02 billion, or 62 cents per share in the prior-year period. On a non-GAAP adjusted basis, EPS came to 83 cents per share.

The consensus EPS estimate for the fiscal second quarter was 64 cents, or 79 cents non-GAAP, according to S&P Capital IQ.

The gains in profitability came on increased revenue across most of Microsoft's businesses. Microsoft total revenue came to $24.09 billion, compared to $23.80 billion in the 2015 quarter.

Its Productivity and Business Processes segment, which includes the company's acquired enterprise social network LinkedIn, saw revenue increase 10% to $7.4 billion. That was boosted by a 47% revenue increase in the company's cloud-based software platform Office 365. Intelligent Cloud revenue climbed 8% to $6.9 billion, with Azure revenue up a whopping 93% year over year. The only segment that contracted was the More Personal Computing segment, which shrank revenues by 5%, primarily on lower phone revenue and modest declines in gaming revenue.

With growth in the cloud driving much of the company's broader financial progress, on a same-day earnings conference call, CEO Satya Nadella pointed out that the annual revenue run rate for its commercial cloud business is over $14 billion.

The declines in personal computing products came despite big gains in certain areas of that business. Windows 10 enterprise and education revenue increased by 62%, Nadella said, and the PC market is "stabilizing," partly due to a return to market from enterprise PC customers and increased demand by gamers to get the latest and most powerful products.

Looking at the company's forward-looking products, Nadella said Microsoft was seeing strong interest in its augmented reality headset HoloLens from commercial and enterprise customers, and the company is looking forward to releasing the platform in China in the first quarter.

Despite the earnings beat, Microsoft shares edged up only slightly in after-hours speculation.