Microsoft's Azure tops $33 billion in a quarter, and OpenAI now makes up 11% of its revenue

The skim

• Microsoft's revenue rose 19% to $92.3 billion in the September quarter. For the first time it gave Azure's revenue in dollars: $33.17 billion, up 48% and ahead of estimates.
• OpenAI brought in $10 billion of that revenue, about 11% of the total, Microsoft said in its quarterly filing. That's more than Xbox or its search and ads business brought in during the quarter.
• Shares rose about 4% after hours Wednesday. Capacity is still tight, partly because some third-party data center deliveries slipped, but Microsoft expects Azure to grow 49% to 50% this quarter.

What Microsoft reported

For its fiscal first quarter, which ended Sept. 30, Microsoft reported revenue of $92.3 billion, up 19%, and operating income of $45.9 billion. Net income was $36.6 billion, or $4.92 a share. Microsoft Cloud revenue reached $63.9 billion, up 30%. Commercial remaining performance obligation, which tracks contracted revenue not yet recognized, rose 73% to $677 billion.

Azure, now Microsoft's biggest single business, brought in $33.17 billion. Analysts polled by StreetAccount expected $32.32 billion, CNBC reports, and growth sped up from 42% in the June quarter. The consumer side was weaker. Revenue from Windows licenses sold to PC makers and Microsoft's own devices fell 22%. CNBC says higher memory and storage costs pushed up prices, and Microsoft pointed to weak PC demand and the end of Windows 10 support last year.

Why it matters

Microsoft is showing that the AI build-out can grow sales without wrecking cash flow, at least for now. On the same day Alphabet's free cash flow came in at minus $9.1 billion, Microsoft's stayed positive at $18.63 billion. That was still down 27%, as capital spending including finance leases rose about 30% to $45.2 billion, according to CNBC. "Some third-party capacity deliveries we expected in Q1 were delayed," CFO Amy Hood said on the call, adding that spending will accelerate in the second half of the fiscal year.

The OpenAI number shows how intertwined the two companies still are. Microsoft recorded $10 billion in revenue from its commercial arrangements with OpenAI in the quarter, TechCrunch reports. For the whole previous fiscal year, the total was $24.1 billion. That's more than Xbox ($5.4 billion) or search and advertising ($6.6 billion), GeekWire notes. OpenAI also owed Microsoft $7.2 billion at quarter's end, up from $6 billion in June. Microsoft didn't say how much came from revenue sharing and how much from Azure.

What's next

Microsoft guided to $96 billion to $97.1 billion in revenue for the December quarter, above the LSEG consensus of $95.6 billion. The cost-cutting continues alongside the growth. Microsoft cut 4,800 jobs during the quarter and this week offered buyouts to up to 60,000 employees. Hood said Microsoft hasn't yet tapped the debt markets to pay for the build-out but could.

Sources: Microsoft, CNBC, TechCrunch and GeekWire.