Nothing like coming back from a holiday to find out the quality assurance of Windows updates has cause some issues once again. What saved the day here is a great colleague who identified the problem, declined the update in WSUS and removed it from the affected machines. Meanwhile, Microsoft Pulled KB4036479 for Windows Server 2012 R2.
KB4036479 was to eliminated the restart that occurs during initial machine configuration (IMC) with with Windows Server 2012 R2. But after a the “successful” update it does the post install reboot, rolls it back and that process starts all over. This happened to both Windows Server 2012 R2 VMs on premises as well as in Azure IAAS. For now it has been pulled form the Microsoft Update Catalog (https://www.catalog.update.microsoft.com/Search.aspx?q=KB4036479). The issues has been discussed on the forums here.
Again, it pays to deploy and test Windows update to a lab or proving grounds environment that mimics your environment before you let it lose on your production environment. Be practical here and don’t let the desire for a perfect but non existent lab be the enemy of good, existing and usable one!
PS: Some people reported issues with KB4038774 as well, but that does not turn out to be the case. In any way these preview updates have no business being installed on production servers and I wish Microsoft would put them in a separate category so they are not detected / downloaded / approved with other production updates but allow for ease deployment /use in proving ground environments.