Microsoft (MSFT) 27 Oct 202021 Q1 Earnings call transcript

Greetings, and welcome to the Microsoft Fiscal Year 2021 First Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Michael Spencer, General Manager, Investor Relations. you. Thank

begin. may You

thank joining and today. you afternoon us for Good

and Nadella, me Officer; Alice On General Officer; with Satya Jolla, Dolliver, Chief Counsel. Accounting Officer; the call Financial are Executive Deputy Chief Amy Chief Keith Hood,

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which call Factors our that the comments and Forms and statements, materially Actual turn the the other in making in events. press filings we risks are this expectations forward-looking uncertainties. to undertake During any sections update and in the differ about to Exchange Satya. future subject do any this statements that, be with are and of other statement. Risk These XX-Q of Form Commission. assumptions statements not or over are predictions, conference made with release, earnings XX-K, could Securities because today’s current call, to and duty during And discussed factors forward-looking will results and projections on based We reports call I’ll

Mike. you, Thank

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good you, and Thank Satya, afternoon, everyone.

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to consistent our increased outlook. to commercial quarter move addressable business, let’s In another drive commitment value, of expanding should drive markets, our execution growing our platform usage and Now that and commercial bookings. differentiated

declining will expiry However, growth. impact base a

these as the will end strong in timing large, XXXX, to an Windows weakness. that in are quarterly a drives long-term impacted have bookings. trends year unpredictable and agreements in and comparable A contracts mix improved be support volatility more of the of though also prior more consumer As impact though businesses, as approximately always, well rate included more their Azure X strength PCs some growth Windows increasing estimate market Commercial Office noted for continue And will quarter, continued transactional our bit, sold In transactional given growth long-term moderated by Server expect increase X margin high again benefit QX. points driven by the our will last accounting change percentage we every consumer growth a growth, of across traditionally volume Japan rates. than earlier. gross cloud in PC year-over-year, from business, at

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to growth. Based expect FX. no operating Company have on to and approximately we Now current rates, FX point increase total impact COGS X growth revenue by and expense on

Computing Cloud Within increase growth revenue and Intelligent Productivity the Processes Personal More and X by have segments, FX should Business revenue approximately point and no growth. on impact

expect guidance. continued revenue billion. be revenue $XX will and Processes, and by Office driven In Office EX. between Productivity opportunity $XX.XX Commercial, Business upsell we billion to growth segment In to with again Next XXX,

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we offerings base. with growth expect Cloud, Intelligent billion will our will and to the expect In quarter And In the between Services, decline strong be year strong continued revenue enterprise revenue given we between overall of year range. we revenue healthy comparable, commercial be Windows, and OEM as commercial the continued we driven on be driven should in Pro continued further, And the non-Pro, our growth billings the business, Windows by our Enterprise mobility and lower for demand prior our revenue in in growth demand premium $XX.X offset significant by consumption-based again annuity server up in low-single-digits products decline business, will billion. In Azure, the expect strong expect to business, noted by billion revenue prior security another a revenue In be rates transactional Computing, OEM our on For expect billion. digit business, More on-premises $XX.XX advanced from the weakness OEM our In by for comparable and we installed per-user high we $XX.X demand. we low-single-digits. expect solutions. growth earlier. expect moderate impact and services, In size $XX.X but single impacted Personal to the base. hybrid cloud

growth in in carry In be and recognition impacted declining the large revenue to that be in expect higher growth earlier. year. the revenue XX% by we a a However, base product primarily in-quarter In prior to will differences Search lifecycle range. in materially revenue deal Gaming, expiry will decline high-single-digit ex-TAC, the unchanged, year-over-year of mid to high timing impacted range. And agreements mix lower the of Surface, multiyear the by relatively transitions revenue due expect noted we

approximately and revenue Xbox supply-constrained strong Series XX%. the following of of expect demand launch our growth driving X consoles, next very S We hardware generation

We this XX% platform. revenue in negative console and invest the gross engagement GamePass should Xbox sales margin range, the content of strong services we value against life-time momentum growing the and low also grow in expect with subscribers. as quarter, from continued impact

in expect our still half fiscal to year. close outlook include second ZeniMax, a the of we the As which not reminder, does

to back Company Now, guidance.

of XX%. billion we $XX.X billion beyond to of to expense $XX.XX We billion. interest to operating next closing, tax $XX.X income expect expense income $XX.XX and In a we be COGS and look In expect other. each other should few as approximately like share billion expense, quarter. I’d offset QX the finally, And our to rate and thoughts

in growth full-year solutions segments partners drive serving to As execute environment. digital commercial our in revenue our competitive and and our teams a sales transformation well high value accelerates and customers, continue challenging even should in double-digit

for go to ambition, invest their high-growth desire and our that let’s strategic enable that to Mike, Given will further that, we areas will the opportunity enhance markets our to our position. continue and creates, Q&A. With future, visions customer’s significant in

to Q&A. to instructions? respect on We’ll the we one ask request please participants call, can Operator, now Out your move Amy. other repeat the you to of over Thanks, only please question.

Instructions] [Operator with question first Our Stanley. Keith from Morgan Absolutely. comes Weiss

talk taking Thank quarter. about the the very little Cloud for a you’re I and Intelligent seeing question. wanted Excellent. nice that trends you there. to bit And

a surveys, CIO CIOs our they like stuff, aggressively public strong indication in the up that move to really cloud. picking from more want to We’re

a that and seeing We’re pass in these seen -- historically, once basis? I’m potential Azure. for environment, payer, increased to sorry, the in tools should about be server the mid-single-digit think this in comps? this and on-premise cloud server from low growth How is Is good for cloud back going on coming results tools more and permanently to we going-forward business tough server on-premise growth we’ve or we a public that to to the there preference

to for computing that the add have And distributed. remain Keith, will Amy, the can couple Keith. taken of we you Let One start, question. A always it. me is distributed is, things, and thanks approach

the the is for what and the applications. So, edge distributor fabric will cloud be

innovations, last big edge. in future data, up for where the things quarter from coming have you thing layer, Cloud, is So, the the coming very Azure Intelligent data our including around any cloud, Arc, like for Same in we a it’s if Azure the number ability all to the growth differentiated. the with one that flexibility deploy, in look the of infrastructure hybrid example, even at that’s deployment, from was

workflows for lift deployment infrastructure. two on happening other Dynamics DevOps or are and The services, preference applications that modernized that what our M extensions XXX things or just apps GitHub of because it’s SaaS apps. Power is whether lot or logic a doing choosing Code, of developers, multiple of application about Azure shift, because with are they’re drives or people So these build stitching motion Azure of VS Platform, new together that

have data more intense application of leading trends services. and So, three these of PaaS all we to the usage infrastructure

need what’s at it. their cloud. plus of increasingly customers that’s for the on at applications. so, look server our options I quarter how each don’t happening that view deployment we distributed I sort look holistic And

add so, please I if And it, want ahead. that’s you And to Amy, sort go see. to of what

help think continue of is Keith, hybrid I the Azure rates, things, see strong it’s plus And think, very this about. the of that you a strength the if general, talking Sure. Satya little in about I strength those value maybe being can value renewal of In terms bit. as we premium, props. performance and easier business to And edge across annuity durable cloud hybrid consistent

than the much It’s XX are numbers our aspect, in that mentioned, that longer because having all Think healthy we we about as months. XX good. as contracts, nearly so, less reasons that see see these why than longer very months, And are frankly, core see motion RPO versus don’t why annuity Satya bookings It’s you Keith, of which very growth. both change that. Azure

left it non-annuity/what is you’re business, business, transactional that, which in-quarter. we environment lot move more a does of recognized transparent when just So, it that. hurts end around it this we both more but which because all then, about then, tough is is in with more. support, And that of so of were helped macro call what component we And a onetime because the of small And comparables. some obviously purchases, had

expect far of Azure through a consumption, and nature more renewals, feel of as it we’ll we of consistent bookings, in-quarter And so, to bounce that. the how value is fundamentals the to continue that will well around not XXX% because than few quarters bit have I answer as and premium would a hybrid while recognition,

Sachs. with next Our Goldman comes from question Bellini Heather

had I question. a Amy,

you really on into growth but key You look as so, in strong the areas. top just invest made also some customers to the growth future, comments robust line, your desire for out you invested, your rightly

really like interpreted an on do one eye little comments you strong how Thank your bit think, you And be might and well? obviously, we the deeply? those impact interpret Like that how we’re investing growth for is, about would trajectory? should operating people margin we comments of how wondering a so think as might growth more questions there’s profitability much. that but I remains

Thanks, Heather.

comments a us. of take about really the and consistency back, in the are the front step you opportunity If

seeing And to seeing for annuity talking TCO consistent customers even so, good about you it’s in are go Satya the frankly, seeing comments, we’re for section our advantages usage, like commercial portfolio who section, ways our control commercial costs. execution, deployment. where that went we’re increasing And portfolio the that accelerate looking if by amazing, we’re but offers, segments, through his in

basically And high so opportunity, you feel that operating for see us, environments our where we and my sure value. to about intend making the -- do, when to you continue you really about around those, about go What that a but it good we complete stack like make to opportunity feel at were we good are and you feel we portfolio, can want see we after comments your see. the clear

some the the also a by hardware And as making numbers. continue do we’re of course, at investments of us real of to we the expect areas we Windows always these focus as the as -- will margins, in well we’re just year, the second such so, focus. it’s we how obviously see impacted operating I And to overall But, thoughtful where about signal, that strong invest. half enter be

best that’s think So, about the it, I way to probably suppose.

Thank you so much.

years. We’ll call after miss the And Heather, on seven you having congratulations.

so you Thank much. Bye.

with Research. comes line from the Mark question next Our Moerdler Bernstein of

really much quarter. question. Thank you congratulations clean the taking a And nice for on very

to in able SaaS chain Are the components? flare-ups And there meet certain be it cloud that, the increasing how do continuing pressure and the impact do you COVID Thanks. demands? in to to adding Does you all is your see lockdowns, on Given forward? think overall going geographies adoption spending? for supply you going

So, can mean, learned and last constraints with the to well and is I I’ll digital add nine work we business overall, and is both, pivot some Amy, how way you start, whatever, ensure as the what tech. to as so months reimagine best or have to transform it. the of any maybe over for resilience

it’s, to for solution need it it. many they Power in So, increased able of some and for fact, whether it’s it’s in able and business. example, see, or the like that’s Apps, whether deploy on what see if to build deploy to curbside that that But rate. example, for be workflow a infrastructure, a you to you’re even small them, a allows where in adoption do pickup were retailer SaaS, And you cases, quickly easily data businesses smallest say,

surges We And initial adoption is chain. is on use. very did -- did good that’s demand. the right our increasing So, had we have what seeing, rush, supply are and supply on needed now supply to that Amy? which chain we have We demand the side, through. working get worked through and we work us support how sort of feel to on the the we

add, Satya. Nothing to

from Winslow question Phil Next comes with Fargo. Wells

penetrated. XX%. my briefing analyst financial focus you XXX was And And update are in back the wanted now Yes. taking the Office back great for just Thanks on question. Amy, XXXX, in you for to XX% commercial. to I on that thank that quarter. Congrats another if that I go

of too obviously Obviously, that’s the those gave, questions. sort one the to healthy numbers two continued that, installed you a is as us base that, installed EX. growth. I guess, help with So, of is One you just follow-up things you growth? X to unpack percentages, could the migration then, base the And mentioned pretty

motion? Sort which just for going of inning the in EX of of to voice, important XXX forward? Office you the how EX are mentioned what things is is we one on sort to And EX

Amy, go ahead.

the right comment Phil, the It’s XX% down because way. in want on Let installed current really question, XX% that of is to me your base. make sure I the thought about break

to so terms to continue of that EX increasing scenarios, The on in there’s it’s pleased both you is have, continued We’ve continue value, this people many Phil, have room, of offer, to To exciting for we got to experiences in voice, those continue, that value, some motion Office analytics on one offers that ways we adding And there’s offers on first-line obviously But, installed adding worker so, the it room key value, more really components whether that although able to it’s and voice, EX to see security to value as base it to EX. EX. an of point, business, And and productivity motions. got compliance XX% add to component. actually to us important installed being are base. We’ve XXX tremendous that of said, that’s we not room small your to whether there’s question, the obviously. just growth. move And value. continue have of is is to in offers modern continue, grow of it

motions And gets TCO. about to especially value reality more that also when think talk to sometimes is one of components, around meaningful, time Windows XXX to I one is group all Office and missed becoming The ability or us of whether the Microsoft EMS important and other that’s continue security value. for thing that’s is key the in the we are the XXX so, add this them business

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Karl from UBS. comes question Keirstead with next Our

ask to question. you a you. Thank Amy, wanted I

in some you volatility, next the convert you uncertain by XX% particular Azure complement such will as you. to that been that been whether I nice a the wanted color reported the or have of so? Azure go-lives if might quarter as the have that number the kind the revenues of That the to And, feel Thank deals about two, a level of planning the year how comment over you of activity solid bookings backlog gave. to or Azure be given environment? serve pushed or Azure we trends, signed, some see phase, Azure the in still made about about can’t ask Given might migration

Amy. ahead, Go

these Karl, talk some discussing, term it’s deals of sort and I of term longer down question. let a was think about break you deals, the the some me When Maybe good I about bigger components. when of longer they them longer more being in tend They through. really take that time that volatile, moment we planning. exact it’s partnerships get just done. be for to on the really that we’re focus -- don’t more Azure They it’s working

than these that arrive of quarter making which really successful partnerships, types about so, sure make it’s we far they And more in. them

result just little does bookings in number. that so, volatility a in more bit that And

around separate so that Now, I of from good performance you’re [Technical much how question our today Difficulty] creates in I exist on-prem. is Difficulty] think the -- which [Technical annuity that would asking, in

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you effectively consumption. a the on-prem longer-term business And talking that, about well contracts these think annuity Azure so, business into, about you’re as book as as and convert continue work think as being this about when of to to

it’s has and of obviously, quarter. recognized within Most is other obviously it, it’s in -- used quarter, Now the consumption a impacts.

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strong at strong, also of longer that get seeing conversion bookings how customer So, work about XX-month balance, the than meticulously the level especially success. while a we the to and absolutely certainly think funnel projects to we RPO sort and

value. comment Amy’s new we when at portfolio see, of to we to Microsoft of part and build because our move to stack first which that to want And be more then, could about Just of sometimes Azure. motion, SaaS dynamics them, a just I’d help it And them our XXX a -- on built, to be we customer, module gets there any and retire, or the look in do right? is is they So, Office do or is, to app XXX. success customer look faster App It all, in which better the want that one thing for modernize Power starts. use you that’s for they earlier time which apps application apps a is what could to add that’s cloud cloud then all

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approach we how that’s it. So,

next Our Brent from comes Jefferies. question with Thill

the Teams a duration. to to Teams pretty the and you you double and seeing chapter short just the MAUs Good the opportunity, you and attached you. the are through what can good your components number where Maybe other rollout? walk of afternoon. biggest next story Satya, see Thank see us Teams if in

at as much so question. shell Thank that Sure. to Yes. the application else you anything it us a because meetings, business like exciting layer, it’s Teams. has collaboration is and well because is we platform very the done integrate literally effect as a Teams it’s have for into it’s unlike chat, applications process

richness it literally makes a platform. So, that robust scaffolding very

so, we growth. significant are seeing And

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Microsoft XXX is stands have stitched where to that completely really ability So, together the out. workflow

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question BMO. from with Keith next Bachman comes Our

even if much. of to how the growth what on are is Thank as very you those would past durable with Amy, Windows? and with Satya we Thank much. and the envision the drivers, you the the on what you In key tough speak MPC. could you that, particular, you growth potential compares, key of the risks Hi. wondered move within characterize growth associated would envision very comments Windows? And I perhaps Windows you

when the on to it have Windows I it or and that it. to PCs to and any learning, comes last applications maybe can having Amy, work of PCs. when comes remote If and add PCs, So, proven so depends mission-critical months type nine remote on productivity, become they you anything, start, because particular, activity again, can then in and and

XXX and even way keep to best well. innovation And in even So, our where doubling want That area about surface down because we working best to process. function as collaboration, think we are we it’s Windows, for Windows we’ll productivity, payloads the business is conceptualize on communications, form the means, how it. on deliver Microsoft innovation one the

large devices, So, small to Windows screens, chip always. pretty you architectures have even make a attractive to the if different look lineup that see with holiday screens, it’s at it of mobile, device you that, great

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something look that’s forward And so, that we to.

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from comes with Piper Brent Sandler. final question Our Bracelin

XX% I that’s I’ll in squeeze revenue. follow I to segment is a on now two, This wanted up if to grown could. Azure. of

X% ago. three up I think, that’s years from just

years? are big the at journey where size important my And looking a really about model? question to the out is for it the the looks My How Azure? number Azure applications of talked around the the how this from could time it in around be And like standpoint, Microsoft over business You model, doubling. first five next Windows than is petabyte-scale bigger three is in to ever. ultimately, we

to And Let you is tech and double the The the We sort the in about you a Amy, highest pandemic add cloud why the if needed said I today it. the that need what’s And X%. more existing distributed XX for need, have, move. doubling. perhaps to that’s -- me going context, XX% this way, most landscape percentage think importantly, you has infrastructure. be new large it think both so GDP, -- computing spend in years. and there’s going secular applications of modernizing at as more so accelerated that penetrated, It’s starts application to the there’s start, that it’s But anything, infrastructure. levels will forward the is of of if needs which next can for XX% need way by

we SaaS so, layer. earlier. but early distributed Microsoft But, But, importantly, work And of think not reinforce all of quarters, all of I up, applications, whether Platform, important we’re Amy just that sort it approached made layer think same infrastructure the will layer more modern think we business and way in even the XXX, to data AI innings. that between that you most points layer There isolation applications, still Power if is in composes do our is we’ve the volatility, cloud stack. the that be the composes, those tech add

is infancy. tech its in So, would new its in stack still very I that -- digitization say this

And layer when have it or of even the markets maybe Satya need people and data ago, better every the seems Brent, having every process the nearer layer, just I addressable end. reinvent in by stack think value, need that at time we they in early more enabled fast saw last When than important it’s when few I when constraints, AI to a to think it’s seeing point expanding where effective places layer, quarters a we and talk the you do that and layer. about a maybe the manner, business even say made you is be most think the about almost to every think layer opportunity innings people and frankly each the infra is

lot that respect. And optimism so, of a feel I in think we

enterprise. I milestone digital Azure that larger acceleration know you the to is be feels like an first the guess, really being talked Thanks. AI actually happening and license and is And in for almost plan faster. AI. platform. how across in Windows the question across it I Certainly of feels democratize to important this for like But, than adoption the time. consumer about about last me plans I’d GPT-X acceleration with hear curious the for on kind everyone’s

comes workflow large-scale seeing in Yes. being want card It’s things with because these professional significant great learning, across two developers, into the to for of productivity a used AI. which both of experts use business is are who zero-shot -- a compute observation in even build using But, lot lot AI are workflows transformer these tap who services Azure. usage domain increases where and And data process interesting so to board, services or services services actually being with other we do a the there by the card are we models call are AI is Power is seeing that is thing what happening. able sort that’s the I people gains assisted these to Apps, other of businesses would by of and way, the

speech well So, of recognition Dynamics session incorporated. it’s and it so well. AI that AI with is full the that’s services as incorporates transcription services, every exciting the thing same that mean, as to on and of see as because I Teams

joining Q&A today of forward for That all soon. to Brent. call. up Thank you with of the earnings us speaking look wraps Thanks, you and we portion today’s

Thank you.

much. so Thanks all. you Thank

you this and Ladies may for today’s We gentlemen, thank participation your your you concludes time. teleconference. disconnect and lines this at