+ Azure continued to be a bright spot. In 4Q23, Azure cloud revenue grew by 27% YoY on a constant currency basis, at the high end of management’s guidance range, with about a 1 percentage point benefit from AI services. Growth continues to be fueled by corporate cloud-computing demand as enterprises look to lower OPEX and digitize their operations. Management highlighted that Azure OpenAI service now has 11,000 customers (IKEA and Volvo Group) compared with 4,500 in mid-May indicating early traction for its next-generation AI services.
+ Strength in Office 365 commercial revenue. Office 365 commercial revenue (under productivity and business processes) grew 17% YoY in constant currency driven by subscriber growth and ongoing ARPU increases as customers upgrade to the E5 license for its advanced security and analytics functionality. Microsoft reported paid Office 365 commercial user growth of 11% YoY again led by small-to-medium business and frontline worker offerings. While it is early days, we believe the adoption of Office 365 Copiplot AI tools can lead to an uplift in revenue (US$30 per user per month) and should enable Microsoft to maintain double-digit Office 365 growth rates.
– Deteriorating PC market hurt Windows and Devices. In 4Q23, more personal computing revenue fell by 4% YoY to US$13.9bn mainly due to Windows and Devices businesses. Windows OEM revenue, which includes the sales of Windows software to PC makers, declined by 12% YoY. Additionally, Devices revenue, including Microsoft Surface tablets and computers, HoloLens, and PC accessories, fell by 18% YoY. This is mainly due to weakening consumer demand for PCs and macro economic uncertainty.