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Microsoft's Growth ReAzuring Under Nadella

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Microsoft delivered a strong finish to a record fiscal year, with revenue surpassing $125 billion. Optimism around the software giant's cloud business has boomed, thanks to a paradigm shift to the cloud. CEO Satya Nadella's Cloud strategy has paid off big-time for Microsoft.

The company generated more than $38 billion in annual revenues from its commercial cloud business with gross margin expanding to 63%. 'Azure' - Microsoft's cloud-computing platform is used by more than 95% of the Fortune 500 companies. Microsoft expanded partnerships with Oracle, Red Hat and VMware, as recently as this quarter.

"We are building Azure as the world's computer, addressing customers' real-world operational sovereignty and regulatory needs. We have 54 data center regions, more than any other cloud provider, and we were the first in the Middle East and in Africa," Nadella stated in the earnings call.

Amy Hood, Microsoft's CFO said in the recent earnings conference call that the company closed a "record number of multi-million dollar commercial cloud agreements" in fiscal 2019, with "material growth in the number of $10 million-plus Azure agreements." Commercial bookings growth exceeded expectations, driven by strong renewals and increase in the number of larger, long-term Azure contracts, leading to Contracted Not Recognized (CNR) revenue of $91 billion, up 25% year over year. CNR includes unearned revenue and amounts that will be invoiced and recognized as revenue in future periods. Artificial Intelligence (AI) and machine learning characteristics are expected to bring more growth for Azure.

Most recently, Telecom giant AT&T chose Microsoft as the preferred cloud provider for non-network applications, as part of its broader 'public cloud first' strategy. Some Media reports said the deal was worth more than $2 billion. Although, Microsoft CEO Nadella declined to comment on the exact value of the deal, he did acknowledge that it was the largest commercial deal of its size signed by Microsoft and hinted that there could be more such potential large-sized deals. Under this multi-year alliance, AT&T plans to migrate its non-network infrastructure applications to the AZURE cloud platform, and provide 'Microsoft 365' to its employees.

Microsoft 365 is a subscription-based complete package that brings together Office 365 cloud software, Windows 10, Enterprise Mobility and Security solutions. In the earnings conference call, Satya Nadella stated that L'Oréal, Walgreens Boots Alliance, and Chemical company BASF chose Microsoft 365 this year, while S&P Global, CenturyLink and KPMG opted for Microsoft 365 E5 - a premium offering, over the last two quarters.

Earlier this month, ServiceNow, Inc. (NOW) said it would move workloads to Microsoft Azure for some highly regulated industries. ServiceNow will first be available through Azure Regions in Australia and Azure Government in the United States, followed by additional markets in the future. Microsoft also announced a deal with Providence St. Joseph Health, by which the latter will use Azure as its preferred cloud platform and provide Microsoft 365 to its 119,000 caregivers, while supporting patient engagement using technologies including Dynamics 365.

More than 91% of Fortune 500 companies use Dynamics 365 or Power Platform, both of which are flagship product lines of Microsoft's Business Application division. The Power platform combines low-code, no-code app development, robotic process automation, and self-service analytics all in a single platform. In just a year, Chevron's PowerApps users have grown from 80 to 5,500, and the energy giant has 200 Apps in production currently.

Microsoft's 'Open Data Initiative' with SAP and Adobe has empowered customers like Coke, Unilever, Walmart and HP to build data models to cater to their enterprise requirements.

Innovation is fueling growth at Microsoft. The Tech giant says its investment in mixed reality cloud - an attempt to bridge the digital and physical worlds - is beginning to see traction from manufacturing to retail to gaming.

Looking ahead, the company continues to expect double-digit revenue growth for fiscal 2020, with another year of strong performance and continued momentum in its commercial business. Analysts are modeling 11% revenue growth.

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