Microsoft's Cloud Blip

NEW YORK (TheStreet) -- Microsoft's (MSFT) cloud business produced banner numbers in the company's fiscal second-quarter earnings release last week. However, that didn't halt ongoing worries the cloud is cannibalizing some of the firm's more traditional businesses.

One line item that raised some eyebrows was a decline in Microsoft's short-term unearned revenue to $17.616 billion from $20.639 billion, arguably traceable back to cannibalization issues. Another was the 24%, year-over-year revenue decline in Office Consumer revenue, with two-thirds of it attributable to the shift to prepaid Office 365 home premium services, from the PC version. Weakness in the PC market was responsible for the rest of the 24% slump, a smaller portion of it, indicating there are still consumers willing to buy Office for the PC.

"Them cannibalizing themselves isn't as horrible as it sounds," said Kevin Walkush, business analyst at Jensen Investment Management. Jensen holds more than $6.78 million in Microsoft shares.

Focusing on some of the less pretty numbers may digress from the big picture, which is that Microsoft has carved out a niche area for itself in the stiffly competitive and still fickle cloud landscape. It is on a clear path to a stickier, long-term monetization model for its diverse offerings across infrastructure and software as a service, and cannibalization is just something it has to experience along the way.

With the cloud, much of the client payments get spread over the lifetime of the customer, yielding plenty of additional sales opportunities down the line, even though for now, it's taking take a hit from the lower, upfront costs of the services.

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