Connections

While Microsoft again reported that it benefited from the robust performance of its Intelligent Cloud business in its second quarter (ended Dec. 31), Satya Nadella, its CEO and chairman, told analysts on an earnings call Jan. 24 that his company remained “committed to operational excellence, aligning costs and growth, investing in our customer’s success, and leading the AI platform wave.”

A few things have become “increasingly clear” as Nadella said he meets with customers and partners.

For one thing, “just as we saw customers accelerate their digital spend during the pandemic, we’re now seeing them optimize that spend,” he said.

Meanwhile, organizations are “exercising caution given the macroeconomic uncertainty,” he told analysts.

“And the next major wave of computing is being born, as we turn the world’s most advanced” artificial intelligence (AI) models into a “new computing platform,” he said.

“In this environment, we remain [convinced about] three things: This is an important time for Microsoft to work with our customers helping them realize more value from their tech spend and building long term loyalty and share position, while internally aligning our own cost structure with our revenue growth,” he said.

Second, he said, that, “in turn, sets us up to participate in the secular trend where digital spend as a percentage of GDP is only going to increase.”

And, third, Microsoft is “going to lead in the AI era, knowing that maximum enterprise value gets created during platform shifts,” he told analysts.

‘The Age of AI’

“The age of AI is upon us and Microsoft is powering it,” Nadella told analysts. “We are witnessing non-linear improvements in capability of foundation models, which we are making available as platforms. And, as customers select their cloud providers and invest in new workloads, we are well positioned to capture that opportunity as a leader in AI,” he said.

Microsoft has the “most powerful AI supercomputing infrastructure in the cloud,” according to Nadella.

One week before the earnings call, Microsoft made Azure OpenAI Service “broadly available and already over 200 customers – from KPMG to Al Jazeera – are using it,” he told analysts. “We will soon add support for ChatGPT, enabling customers to use it in their own applications for the first time, “ he added.

Just one day before the earnings call, Microsoft announced the “completion of the next phase of our agreement with OpenAI,” he also noted. “We’re pleased to be their exclusive cloud provider and will deploy their models across our consumer and enterprise products as we continue to push the state of the art in AI.”

He added: “All of this innovation is driving growth across our Azure AI services.”

Intelligent Cloud Growth

In Q4, Intelligent Cloud revenue grew 18% from Q2 a year ago to $21.5 billion. Within that business, server products and cloud services revenue increased 20%, “driven by Azure and other cloud services revenue growth” of 31%, Microsoft said. Total Microsoft revenue inched up 2% to $52.7 billion.

“Enterprises have moved millions of cores to Azure and run twice as many cores on our cloud today than they did two years ago,” according to Nadella. But he said “we are still in the early innings when it comes to the long-term cloud opportunity.”

As an example, he said insurer AIA was able to save over 20% by migrating to Azure and reduced IT provisioning times from several months to only an hour.

“We also continue to lead with hybrid computing, with Azure Arc,” he said, noting Microsoft now has over 12,000 Arc customers, “double the number a year ago, including companies like Citrix, Northern Trust, and PayPal.”