Microsoft’s earnings tumbled last quarter on economic worries

Microsoft’s earnings tumbled last quarter on economic worries
Microsoft’s earnings tumbled last quarter on economic worries

Microsoft Corp.

posted its weakest sales growth in more than six years last quarter as demand for its software and cloud services cooled on concerns about the health of the global economy.

Revenue for the Redmond, Wash., company rose 2% in the three months to Dec. 31 from a year earlier to $52.7 billion. Its net income fell 12% to $16.4 billion. This is the weakest revenue growth for the company since the quarter that ended in June 2016.

“Organizations are treading cautiously given the macroeconomic uncertainty,” Microsoft Chief Executive Satya Nadella said in an earnings call on Tuesday.


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The software maker is the first of the tech titans to announce its results for the quarter. She and others recently announced layoffs of thousands of people to reflect a sudden drop in expectations about future demand. Last week, Microsoft announced plans to cut 10,000 jobs in response to the global economic downturn, the company’s largest layoffs in more than eight years.

Microsoft said it expects about $51 billion in revenue this quarter, up 3% from the same quarter last year. Its shares, which initially rose on after-hours trading results, gave up their gains after the company announced its guidance.

Microsoft’s Intelligent Cloud business, which includes its Azure cloud computing business, grew 18% to $21.51 billion. Azure rose 31%, which was slightly above some analysts’ expectations. Microsoft Chief Financial Officer Amy Hood warned that Azure business growth slowed at the end of the year and will continue to slow in the coming months.

“We’re seeing customers treading cautiously in this environment and we’ve seen results weaken through December,” Ms Hood said.

Microsoft is one of the leading cloud services companies that have exploded during the pandemic. In the midst of a health crisis, Microsoft has announced several consecutive quarters of sales growth of 50% or more year-on-year for its cloud computing platform, world number 2 behind Amazon.com Inc.

cloud. While Azure and other Microsoft cloud services remain the company’s main growth driver, demand is not what it was a year ago as customers try to manage their cloud computing costs. .

The company bet that the next wave of demand for cloud services could come from more companies and people using artificial intelligence. He deepened his relationship with AI startup OpenAI, the company behind the Dall-E 2 image generator and the technology behind ChatGPT, which can answer questions and write essays and poems.

“The age of AI has arrived and Microsoft is driving it forward,” Nadella said on Tuesday.

Microsoft had been shielded from much of the recent downturn because it derives most of its sales from businesses rather than advertising and consumer spending. However, it is not immune to the end of pandemic trends that have boosted demand, hiring and investment as well as economic headwinds such as high interest rates.

Demand for Windows operating system software has fallen along with sales of personal computers that use it. Households, businesses and governments that purchased computers during the pandemic are cutting spending.

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This was reflected in revenue from Microsoft’s personal computing segment, which fell 19% to $14.24 billion. Sales related to its Windows operating system fell 39% and sales of devices like its Surface tablets fell 39%.

Global PC shipments fell 29% in the fourth quarter of last year from a year earlier, according to preliminary data from research firm Gartner Inc. Financial analysts do not expect this trend improves before 2024.

Photos: Tech layoffs in the industry

Microsoft said its video game revenue fell 12% in the quarter. Microsoft’s video games and Xbox video game consoles are increasingly important businesses for the company. The video game industry is experiencing a downturn as pandemic restrictions ease and people spend less time at home.

The company made a huge bet on the industry a year ago with its $75 billion plan to acquire gaming giant Activision Blizzard Inc.

Last month, the Federal Trade Commission filed a lawsuit to block the acquisition, saying the deal would give Microsoft the ability to control how consumers beyond users of its own Xbox consoles and streaming services subscription access to Activision games. Microsoft then filed a rebuttal saying the deal won’t harm competition in the video game industry. It could take months before it’s decided in the United States and elsewhere whether the deal can go through.

After the close of regular trading on Tuesday, Microsoft shares had slid about 18% from a year earlier, broadly in line with the tech-heavy Nasdaq Composite Index.

Write to Tom Dotan at [email protected]

Write to Tom Dotan at [email protected]

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