Microsoft Q2 strong amid commercial cloud revenue surge to $36 billion annual run rate

Microsoft's second quarter earnings were better than expected with in line revenue as its commercial cloud business delivered $9 billion in sales for a $36 billion annual run rate.

The software giant reported second quarter net income of $8.4 billion, or $1.08 a share, on revenue of $32.5 billion, up 12 percent from a year ago. Non-GAAP earnings were $1.10 a share.

Wall Street was looking for second quarter non-GAAP earnings of $1.09 a share on revenue of $32.5 billion.

By division for the second quarter, Microsoft reported productivity and business processes revenue of $10.1 billion, up 13 percent from the second quarter a year ago. Intelligent Cloud revenue was $9.4 billion, up 20 percent from the second quarter a year ago. And More Personal Computing sales were $13 billion, up 7 percent.

Based on Thomson Reuters detailed estimates, analysts were looking for Intelligent Cloud revenue of $9.28 billion, More Personal Computing sales of $13.07 billion and Productivity and Business Processes sales of $10.09 billion.

CEO Satya Nadella said its cloud business is benefiting from business in industries such as retail, financial services and healthcare.

By the numbers:

• Office commercial products and cloud services revenue was up 11 percent driven by Office 365 Commercial sales, up 34 percent from a year ago.
  
• Office consumer products and cloud services revenue was up 1 percent. Microsoft had 33.3 million Office 365 Subscribers.
  
• Dynamics revenue was up 17 percent with Dynamics 365, which is cloud based, driving sales gains of 51 percent.
  
• Azure revenue growth was up 76 percent in the second quarter compared to a year ago.
  
• Surface revenue was up 39 percent from a year ago. Surface revenue for the second quarter was $1.86 billion, well ahead of the $1.33 billion a year ago.

Based on operating income Microsoft's Productivity and Business Processes unit continues to carry the day, but Intelligent Cloud is making gains. Here's the operating income breakdown.

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