Based on the analyst, the Azure cloud will make Workplace Microsoft's largest firm within the subsequent 12 months


Satya Nadella, CEO of Microsoft Corp., speaks during the WSJDLive Global Technology Conference on Monday, October 24, 2016 in Laguna Beach, California, USA. The conference brings together an unmatched group of top CEOs, founders and pioneers. Investors and sizes to explore technical possibilities that arise worldwide.

Patrick T. Fallon | Bloomberg | Getty Images

Microsoft's Azure cloud for hosting websites and applications will replace office productivity software as the company's largest source of income in 2022, predicts Piper Sandler analyst Brent Bracelin.

This would be a landmark milestone that underscores Microsoft's successful transition from local software to cloud-based services since Satya Nadella took over Steve Ballmer in 2014.

Piper Sandler, who has a Buy recommendation on Microsoft stock, said Azure's revenue was $ 7.20 billion in the company's second quarter, which would mean it contributed 17% to Microsoft's total revenue compared to 4 % three years ago . Microsoft doesn't quote Azure earnings in US dollars, but Piper Sandler's estimate is in line with general sentiment. The analysts at William Blair, who also have a buy recommendation for Microsoft, estimated Azure sales at 7.40 billion US dollars.

That means Azure is already significantly larger than the 1985 Windows franchise that made Microsoft the most valuable, high-performing tech company in the world in the 1990s. According to Microsoft's income statement, Windows had sales of $ 5.72 billion in the quarter.

Azure also outperformed Office 365 sales to commercial customers for the quarter ended December, according to Piper Sandler.

Now is the time to determine when Azure can completely dwarf Office, including consumer subscriptions to Office 365 and traditional Office licenses. Piper Sandler says that will likely happen next year.

"We have Azure quarterly revenue of $ 11.8 billion through June 2022 (surpassing total revenue of $ 10.9 billion for the first time)," Bracelin said in an email to CNBC on Wednesday.

Microsoft's Office franchise has been around since 1989, and its oldest component, Word, its word processing software, has been around since 1983. It holds a dominant market share, and under Nadella, Microsoft has shifted many of its business customers from buying Office software licenses to Paying Office continuously 365 subscriptions.

In contrast, Azure has only been available since 2010 – originally referred to as "Windows Azure" – and technology industry research firm Gartner estimated it was about 40% the size of market leader Amazon Web Services, which Amazon launched in 2006, in 2019.

Both Office 365 and Azure were from Microsoft, while Ballmer was CEO. However, Nadella has made Azure a focus area and has cloud partnerships with companies that have historically been competitors, including Salesforce and Sony. Nadella also ran Azure before assuming the CEO title.

"He led important strategic and technical changes in the company's products and services, particularly our move to the cloud and the development of one of the largest cloud infrastructures in the world supporting Bing, Xbox, Office 365 and other services," said Microsoft Nadella in his 2014 proxy statement after he became CEO. "This experience is of fundamental importance for the current strategic direction of the company."

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CLOCK: Azure is the main driver of Microsoft's growth: Bernstein's Mark Moerdler


Katherine Clark