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Enterprise, Windows still power firm's shaky money-maker

Internet Security Threat Report 2014

+Analysis Microsoft has cracked open its annual and Q4 results, the first end of year numbers it has spat out under brevity-challenged chief executive Satya Nadella.

As befitting such a results event, there was plenty of backslapping and self-congratulatory talk about how Microsoft is turning into a cloud business.

But why was Microsoft’s head of PR, Frank X Shaw, so furiously trying to put a positive spin on things via Twitter that he had to be told to shut up and “go home” by one of Bloomberg’s Microsoft watchers covering the results event?

Despite all the hype about being a cloud, devices or a consumer company, Microsoft must once again thank enterprise customers for paying their way. Revenue from business customers made up the single largest block of Microsoft’s year in 2014.

Redmond made revenue of $49.57bn during financial 2014 from two units – commercial licensing and commercial “other”, which reported $42bn and $7.5bn respectively. The commercial units were one of Steve Ballmer’s last acts as CEO and got board approval.

Between them, these two sweep up Microsoft’s hefty on-prem plus its aspiring cloudy business – Windows Enterprise and Windows Server products, Office business, Dynamics and Unified Communications, Office 365 and Windows Azure. Many of these products had been in the old Microsoft Server and Tools business that the company’s current chief executive Satya Nadella ran. S & T was one of Microsoft’s big three engines, along with Windows and Office.

In a further sign that it was Server and Tools running the show, it was – as ever – Microsoft’s database that was blowing the doors off. Revenue from SQL Server grew 19 per cent in the last 12 months.

As a business area cloud was also growing, and Microsoft claimed commercial cloud revenue grew 147 per cent ($564m) in the quarter “driven by Commercial Office 365 and Azure.”

The company’s other big revenue generator in 2013 was, as ever, Windows. The device and consumer-licensing unit created by Ballmer reported $18bn in revenue, down about one per cent on 2013 – or in Wall-Street-speak, “flat.”

After device and consumer licensing and the commercial licensing business (numbers two and one in terms of overall revenue size) there was a big drop off.

Next came computing and gaming (Xbox), device and consumer “other” – a runt category that includes Office 365 Home Premium and Bing. Windows Phone hardware – the old Nokia business - limped in on $1.9bn in revenue.

So not a cloud business after all, more an enterprise business?

Hold on just a second. While on-premises licensing of server and tools and sales of Windows were the big two Microsoft did claim large growth in the cloud: it claimed cloud annual revenue run rate now exceeds $4.4bn. There is a caveat, however: beware of tech companies and annual run rates.

It’s the claim du jour being wheeled out by all tech companies that are stuck with on-site license businesses and trying to spin up cloud subscriptions. It’s also opaque and not auditable.

Run rate is a simple extrapolation of one quarter’s results over four quarters; it, of course, takes no account of how results per quarter might change so is not to be trusted.

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