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Seattle: Satya Nadella’s plan to reshape Microsoft Corp. as a cloud-computing company hit a snag in the third quarter, when lackluster sales of Surface tablets and weaker demand for corporate services kept revenue growth in check.
Adjusted sales in the period that ended in March rose to $23.56 billion, falling slightly short of analysts’ average estimate. The miss was enough to give investors pause—the software maker’s shares slipped 1.9% following the report, after rising to an all-time high at Thursday’s close in New York.
Even as some non-cloud businesses underperformed, the company posted another quarter of brisk demand for internet-based versions of Office software and its Azure service for running and storing customers’ data and applications.
Azure sales rose 93%, while commercial Office 365—cloud-based versions of Word, Excel and other productivity software—increased 45%. Microsoft spent last year pouring billions into data centers to run these services and is now signing up customers to fill them. Meanwhile, the personal-computer market, a drag on Microsoft results for the past several years, has begun to stabilize.
“This is a company in transition,” said Brent Bracelin, an analyst at Pacific Crest Securities. “Cloud continues to be the biggest factor in that multi-year transition.”
Profit excluding certain items in the quarter that ended 31 March was 73 cents a share, topping analysts’ 70-cent average estimate, according to data compiled by Bloomberg. Analysts had projected sales of $23.7 billion. Bloomberg