Tech Industry

Microsoft's focus on Windows 10 is starting to pay off

CEO Satya Nadella is relying on the latest version of Windows, and its ability to connect every device to the cloud, to recapture the hearts, minds and wallets of consumers everywhere. His strategy might be working.

Satya Nadella wants Microsoft to touch just about anything you touch.

It's one heck of an ambitious plan, tapping into our impatience when the device we're holding doesn't give us what we want, when we want it.

Yet Microsoft's CEO has assembled a strategy and a string of new products, from smartphones and tablets to games, that could actually pull it off. Everything hinges on Windows 10, which runs across computers, tablets, smartphones and the Xbox game console.

Microsoft CEO Satya Nadella has made Windows 10 the linchpin of his strategy for getting people to think about Microsoft products again. CNET

With Windows 10, developers can write universal apps that work on any device. That could help the world's largest software company build a compelling app repository, like Google's Play or Apple's App Store. The new Surface Pro 4 taps into businesses' and consumers' growing appetite for high-end hybrids that can serve as a laptop and a tablet. That could help Microsoft gain traction in corporations, where Apple's Mac computers do well. And premium phones could finally give Microsoft the cred it needs to hold its own against Apple's iPhones and Samsung's Galaxy S devices.

"Nadella knows you never have a second chance to make a good impression," said Daniel Ives, an analyst with investment firm FBR & Co. "He has to make developers, consumers and companies want to buy and use Windows products, and he's doing that through a unified platform. There are no delusions of grandeur. They have to start small and dream big."

Think of it as a kind of virtuous cycle: The more devices that rely on the new operating system, the more developers will write apps for it, which in turn will attract more customers. For his goal to work, though, Microsoft needs to quickly get the latest software into as many devices as it can, even if it means taking a short-term hit on revenue. Which is why the company offered Windows 10 free to most current users. Earlier this month, Microsoft said more than 110 million people had installed the software in the first 10 weeks after its release at the end of July.

It looks as if Nadella's strategy could work.

The company on Thursday reported a profit, excluding severance and acquisition costs, of 67 cents a share on $21.7 billion in revenue in its first fiscal quarter of 2016, which ended September 30. That sales figure includes deferred revenue from subscription fees for cloud-based products like Office 365 and Azure. Cloud-related revenue across all product segments lifted the results to beat Wall Street's expectations. On average, analysts polled by Reuters estimated a profit of 59 cents a share on $21.03 billion in revenue.

"We are making strong delivering innovation people love," Nadella said in a statement.

This is also the first time Microsoft has divided financial results into three buckets. "Productivity and Business Processes" includes its business suites such as Office and Office 365. The "Intelligent Cloud" segment focuses on corporate software, such as its Windows Server. All eyes may be on its "More Personal Computing" group, which contains Windows 10 licensing, mobile devices, the Xbox gaming console and advertising revenue from search.

Revenue in that group fell 17 percent, brought down primarily by a change in Microsoft's phone strategy. The company in the previous quarter wrote-down $8.4 billion in acquisition and restructuring costs related to its failed acquisition of Nokia's phone business.

On the plus side, revenue from search advertising excluding traffic acquisition costs grew 29 percent, while the number of monthly users actively using the Xbox increased 28 percent, to 39 million.

Investors apparently liked what they heard, sending shares up more than 8 percent in after-hours trading.

Separately, Microsoft laid off about 1,000 employees, or less than 1 percent of its global workforce.