Bonum Certa Men Certa

Azure Apparently Losing Money and Microsoft Lies to Shareholders, in Effect Breaking the Law



Reprinted with permission from Mitchel Lewis

Azure



Summary: Decades down the line Microsoft continues to lie about its financial performance, as it did before, according to a former insider

New lines of business are seldom profitable out of the gate. Some take years to€ break even€ and cloud solutions are not exceptions to this. Although Amazon was able to extend its existing infrastructure to its customers with AWS which kept their break-even to a minimum, others such as Microsoft were not equipped to do the same with Azure and had to break new ground to meet would-be demand. As a result, Microsoft incurred substantial infrastructure and development burdens which dramatically extended Azure’s break-even to 5+ years.

However, Microsoft wasn’t only tasked with having to build out or lease new data center space to meet this demand. They also had to consider future demand and capacity restraints since it takes approximately 3 years to develop an enterprise-class data center beginning to end that meets today’s stringent compliance requirements. Although leasing space allows them to get up and running faster than building new, 9 months on average, it creates another man in the middle which eats away at precious margin and does not accrue equity over time, unlike the property that they own.



If Microsoft undershot on these projections and didn’t build enough data centers, then they’d have to lease out additional space and extend their break-even. But if they overshot, then they stood to lose margin building unnecessary data centers which would take years to offset while also extending their break-even just the same. Needless to say, even a small oversight on this tight rip could prove to be anywhere from profit prohibitive to completely self-defeating.

To do this successfully, Microsoft had to hit a moving target while being in motion themsef. Not only did they have to build out new data centers, they also had to build them in accommodation with hardware that didn’t exist yet in an effort to maximize efficiency and profit. Since server technology is constantly evolving to do more with less of a footprint as time goes on, Microsoft would be able to leverage newer iterations of their old servers to a great benefit. They naturally would be denser with memory and processor cores while reducing their footprint as time goes on. But that understanding alone wasn’t enough and Microsoft needed to know how much space they would need to achieve these efficiency gains.

In order to anticipate future core density and project the efficiency gains associated with them, Microsoft and presumably others banked on€ Moore’s Law€ in 2012 which predicted transistor and core density to double every two years. As such, Microsoft projected how core-dense racks of servers could be 2–4–6–8 years in advance just as they have done successfully in the past. While a single 1x20 rack of servers could provide Microsoft with 10,400 cores to sell on Azure in 2012, Moore’s Law projected that this same amount of rack space would be able to host 20,800 cores by 2014, 41,600 cores by 2016, 83,200 cores by 2018, and 166,400 cores in 2020 (roughly). But this did not happen.



Processor improvements were already stagnating by 2012 which continued midway through the decade and the predictions made by Moore’s Law were falling short with no end to this on the horizon. Many were beginning to€ realize€ that it wasn’t a law at all, but an observation instead. While racks of servers became more dense over time, they indeed achieved greater efficiency with regard to their energy burden and their reduced footprint but this was nowhere near the rate predicted by Moore’s Law. Consequently, where Microsoft was anticipating being able to host 83,200 sellable cores in a 1x20 rack in 2018, they were only able to host roughly 28,000 cores, less than 1/3 of their projections.

As a result of undershooting their projected capacity by such a large margin, Microsoft was way off on their capacity projections with Azure and only built roughly 1/3 of the data center capacity that was actually necessary. Consequently, they had to over-provision their existing data centers to the point of tripping the breakers and rapidly fill the gaps with an excessive amount of leased space to meet the demand that they projected. All of which effectively doubled the amount of leased space in their portfolio from 25% to 50%, extended their break-even to nearly a decade, and killed their hopes of profitability any time soon.

While an honest mistake and not being able to foresee the future is forgivable, knowingly omitting a mistake of this magnitude is criminal when considering how much Microsoft is hedging its future on Azure. On top of supplying€ misleading revenue metrics€ in their quarterly 10K filings to fortify a position of strength and being second only to AWS, Microsoft seems to be wary about reporting Azure’s individual performance metrics or news of these failings that would enable investors to conclude this for themselves. Instead, Microsoft appears to be averaging out Azure’s losses with their legacy mainstays that are profitable by reporting its revenue within their Intelligent Cloud container instead of itemizing it.

Their incentive for hiding such a failure is obvious since much of their future is hedged on Azure. If it was proven to be woefully inefficient and unprofitable, then clients would expect price hikes and an influx of hidden costs on the horizon along with the potential burden of having to migrate away prematurely. Hosting services on an inefficient platform also puts companies at a tactical disadvantage in comparison to those hosting their services on more efficient platforms. That said, I can see why Microsoft would prefer to keep this quiet and why Amazon isn’t in tears when their competition opts to host their workloads on Azure instead of AWS.



Names/email addresses have been redacted

Between these capacity failings and its embarrassing€ ARPA€ relative to AWS, it’s difficult to see how Azure could be profitable at the moment. Microsoft seems to be attempting to bury this by omitting statistics while relying on financial containers that serve no purpose other than being a means of deception. Whether this is lying by omission and misleading investors on matters regarding major mistakes that threaten the long-term viability of their investment or simply creative accounting practices at work is ultimately up to the SEC. As an engineer, I can only report my findings to them and offer speculation to the three people reading my blog; done and done.

Recent Techrights' Posts

Why the Microsoft People Who Started SLAPPs Against Techrights Could Very Well be Sent Back to Prison
White-collar crime is also a crime
 
Yes, Microsoft is Again Using Its Favourite Liars (Stenographers) to Seed Fake Layoff Numbers, Much Lower Than What's Really Happening
It is Jordan Novet again, just as we predicted
Will Microsoft Once Again Choose Its Favourite Liar to Spread Lies About Today's Layoffs, Quickly to be Replicated and Spread by Slopfarms?
What lies is Microsoft briefing its media moles to tell today?
"OSS Fetishism" Wins After Ferenc Zsolt Szabó Ousted (Microsoft Mole From Capgemini)
Many people said 2025 would be the "year of Linux on the desktop"
There is Nothing That LLMs Can Offer Honest People
LLMs are a passing fad; they're expensive and offer poor "value" for energy; they usually offer no value at all unless you are a cheater, spammer, and liar
What statCounter Shows Today Helps Explain Microsoft's Helplessness, Mass Layoffs
Since many US journalists are already away on holiday almost nobody will dare ask the difficult questions or give a voice to whistleblowers
Microsoft Gets the Chop in South America
The notion of digital sovereignty gained a lot of popularity
Europe Has an 'Exit'
Let's see what happens the rest of this year
El Presidente Talks, Canada Walks (Away From Windows)
GNU/Linux rising
Cities in France and Germany Move to GNU/Linux and statCounter Detects Big Differences
Will governments lead by example?
Microsoft Lost Its Foothold in Africa
How many of these are "old" Windows machines converted to GNU/Linux? Probably a lot.
Led by Europe, GNU/Linux Makes Big Gains This Month
statCounter started showing new/fresh stats
Links 02/07/2025: Massive Microsoft Layoffs About to Commence, "Tesla's Robotaxi Program Is Failing"
Links for the day
The Company Run by Former (and Last Proper) Red Hat CEO, Promoting Microsoft Mono, Faces Shock as Senior Partner Jailed for 33 Sexual Offenses Including Pedophilia
"As reported by The Oxford Mail in April 2025, the offenses include rape, sexual assault, engaging in non-penetrative activity with a child, and more."
Microsoft Lost 29% of Windows Users, Based on Microsoft, Now Come Massive Layoffs
Microsoft collapse is today
Slopwatch: Google Serves to People Linux Slop and Linux FUD (Made by Bots)
"Slopwatch" finds it difficult to ignore Google's role in encouraging LLM slop
Over at Tux Machines...
GNU/Linux news for the past day
IRC Proceedings: Tuesday, July 01, 2025
IRC logs for Tuesday, July 01, 2025
"Wayland People" Behave Like the Googles and Microsofts of This World
Published yesterday by Igor Ljubuncic
Gemini Links 02/07/2025: Arch Linux and Fulfillment in Gemini
Links for the day
Links 01/07/2025: "Independence Day in Taiwan", Bounties on Software Patents
Links for the day
What Happens When Your Law Firm is Preoccupied With Harassing and Trying to Extort a Humble Couple in Manchester, Even on Behalf of Violent Microsoft Staff From Another Continent
It's good to see that law firms which operate in bad faith are perishing
Lawyer X, Law Firm X and Elon Musk's X: scandals linked by Old Xaverian
Reprinted with permission from Daniel Pocock
Gemini Links 01/07/2025: Distraction-Free Writing and Hytale Mismanagement
Links for the day
Links 01/07/2025: "Beauty of Blogging" and "Etiquette of Collapse"
Links for the day
Microsoft Uses LLM Slop to Defraud (or Rob) Shareholders
Microsoft is basically defrauding its shareholders by LLM slop
The Web is a Dead End
We need to adopt alternatives
When Words Lose Their Intended Meaning
examples of words that, at least in the technical spheres, don't mean what they sound like
People Who Disagree With You on Technical Matters May or May Not Agree With You on Political Things (But Usually They Do)
What bothers me a great deal is seeing left-leaning people accusing other left-leaning people of being "nazis"
"Too Much Choice" and "Too Many Programming Languages"
What IBM and its apologists aim for was attempted in the 1930s and it failed
Microsoft Lost 400,000,000 Windows Users, According to Microsoft
more people adopt smaller computers and many people replace Windows with GNU/Linux, as they don't really need a new computer
The "Davos Effect": Tarnishing the Reputation of Places Not by Overtourism But by Oligarch Infestation
The last Venice needs is an affiliation with Venetian oligarchs
Half a Year Gone, What's to Come Next
In the second half of 2025 we expect to be done with the Microsoft SLAPPs
Over at Tux Machines...
GNU/Linux news for the past day
IRC Proceedings: Monday, June 30, 2025
IRC logs for Monday, June 30, 2025
People at the Very Top of Microsoft Know How Bad Things Really Are
There's no product that can replace the former profitability of Windows licensing and stuff that went on top of Windows
Gemini Links 01/07/2025: Mid Year and a Tour of Old Languages
Links for the day
EPO Presentation Bemoans Misuse of Slop in Decision-Making on Patents and in Classification (Which is Likely Illegal Too)
We habitually mention failed use cases of LLMs on the Web
Mass Layoffs at Microsoft Confirmed, "XBox Hardware Is Dead"
It's possible that over 20% of the staff will be laid off
Links 30/06/2025: Kyrgyzstan vs Media Freedom, Dalai Lama Succession
Links for the day
Gemini Links 30/06/2025: Backend Programs in Gemini and Dynamic Content Without The Scripting
Links for the day
Links 30/06/2025: Zuckerberg’s Tax-Evading Scheme Harms Kids, US Copyright Office Lacks Leadership
Links for the day
Microsoft Isn't Laying Off Tens of Thousands to 'Invest' in Slop ('Hey Hi'), It's Laying Off Tens of Thousands Because It's Running Out of Money (and Willing Lenders)
the layoffs are a sign of the business failing, not "hey hi" (whatever that is) replacing staff
Intel Lays Off 20% of Its Workforce, Microsoft is Doing the Same This Year
Like a yoyo, whatever goes up will come back down
Microsoft XBox Layoffs: Almost 2,000 Layoffs Became "Over 2,000"? (Over 20% of the Staff)
over 20% of staff will be let go, not counting staff that leaves voluntarily
GNU/Linux Rises to New Highs in Angola, Africa in General is Abandoning Windows
Western media barely covers Microsoft layoffs in Africa, but in recent years Microsoft culled the workforce and even shut down entire operations
Summer Plans in Techrights and Elsewhere
massive layoffs at Microsoft
Destination Geminispace (in the Age of LLM Slop and Slop Images That Infest the Web and Social Control Media)
Geminispace isn't vast, but at least it is - on average - a lot "cleaner"
GNU/Linux Growing in Sierra Leone This Year
Based on what statCounter is seeing, this year there are more and more people there who adopt GNU/Linux
Serial Sloppers Gonna Slop
More sites out there ought to call out the cheaters
Quartz (qz.com) is Spam and a Slopfarm
It used to be OK. Then they fired the staff.
Links 30/06/2025: US Economic Woes, Extreme Heat
Links for the day
Over at Tux Machines...
GNU/Linux news for the past day
IRC Proceedings: Sunday, June 29, 2025
IRC logs for Sunday, June 29, 2025
Gemini Links 30/06/2025: "The AI Hype" and New AuraGem Ask
Links for the day