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Microsoft’s plan to become a major cloud competitor is working

Microsoft’s plan to become a major cloud competitor is working

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Photo by Tyler Pina / The Verge

Microsoft hit a new milestone in its cloud services business this quarter: it’s now able to project over $20 billion in annual revenue. While that may seem like a big but arbitrary milestone, it’s an important one for Microsoft. In 2015, a year after being named the company’s CEO, Satya Nadella said he wanted Microsoft to hit that target sometime in 2018 — a big jump up from the $6.3 billion business it was back then. Depending on how you’re counting (Microsoft’s 2018 fiscal year started in July), Nadella delivered right on time or slightly ahead of schedule.

The milestone was announced in Microsoft’s quarterly earnings release this afternoon, where it reported $24.5 billion and a profit of $6.6 billion, up from $20.4 billion and $4.7 billion this same time last year. The company’s cloud business accounted for $6.9 billion of that, a 14 percent year over year increase.

Surface revenue reached over $1 billion

This isn’t the first quarter to prove Microsoft’s cloud prowess. The company is at the head of the pack of tech giants competing in this space, but it’s still relatively early on in the race, with plenty of room for all of these companies to keep growing. Amazon is looking toward $14 billion in revenue this year, while IBM, Salesforce, and Alphabet are among many racing to catch up, with billions in their own revenue.

While cloud revenues may be the future, the present is still revenue from Microsoft’s PC division. Revenue from Windows, gaming, and other PC businesses was flat overall this quarter, at $9.4 billion. Microsoft says that’s in part due to reduced patent licensing revenue, but it’s also due to a $315 million drop in phone revenue, since Microsoft doesn’t actually make phones any more.

Microsoft’s Surface business also continued to grow this past quarter, seeing a 12 percent year over year rise in sales, which the company attributes to the new Surface Laptop. That puts Surface revenue at over $1 billion this quarter, as the PC line continues to transform into a legitimate part of Microsoft’s business.

On the Xbox front, Microsoft says hardware revenue declined significantly — due to lower pricing and fewer sales — but overall revenue still ticked up ever so slightly thanks to increased Xbox Live transactions. Xbox software and services jumped up 21 percent overall to make up for losses in hardware sales.