Microsoft Revenue Up 2 Percent, but Profit Drops 12 Percent

Microsoft on Tuesday reported its slowest growth in six years and warned that the broad-based decline will continue as both consumers and businesses hold back on spending.

The tech giant said revenue rose 2% from a year earlier to $52.7 billion in the three months ended December. Profits decrease 12% to $16.4 billion.

Both were below Wall Street expectations, according to FactSet. Microsoft’s stock price initially rose more than 4% in after-hours trading, thanks in large part to its cloud computing business, but it lost that gain after Amy Hood, Microsoft’s chief financial officer, said on a call with investors that new business activity slowed in December. The company also said it expected growth to continue to slow in the current quarter, which ended March 31, as business customers continued to be cautious when purchasing new products.

Investors have been closely watching Microsoft’s cloud business and Azure, its flagship cloud product, because of their importance to the company’s future. In October, the company told investors that Azure growth would slow by 5 percentage points this quarter. However, Azure’s sales growth slowed a bit less, to 31%, better than analysts feared, and the overall segment it calls Smart Cloud grew 18%. , which is close to the expectation.

“We have seen strong performance in many regions of the world, however, performance in the US has been weaker than expected,” said Ms.

Brett Iversen, the company’s head of investor relations, said Wall Street is trying to separate the economic issues from the way Microsoft operates. “We focus on what we can control, which is the enforcement aspect,” he said.

The past few months have been turbulent for Microsoft. In December, a $69 billion deal to acquire video game maker Activision has been challenged by regulators in the United States, and last week it began laying off about 10,000 workers.

On Monday, Microsoft announced a major new investment in OpenAI, the startup behind ChatGPT and other generalized artificial intelligence breakthroughs, and signaled its plans to bring AI into a range of its products. Microsoft.

Satya Nadella, Microsoft’s chief executive officer, emphasized the urgency the company is pursuing in AI. “We basically believe that the next wave of platforms will be AI,” he said on a call with Wall Street analysts, adding that Microsoft is making strong strides. to “catch the wave”.

He said the company is trying to build long-term loyalty from customers by making them more efficient. Since the majority of cloud computing is typically billed based on how much computing customers use, making customers more productive could reduce Microsoft’s sales in the short term. But Mr Nadella has argued it also helps demonstrate the value of cloud computing in allowing customers to “do more for less”.

The biggest slowdown came from Microsoft’s personal computer business, where sales fell 19% and operating income fell 47%. Business boomed in the early stages of the pandemic. But the new PC shipments globally are already in condition near free fall for monthsand sales of the Windows operating system installed on new computers fell 39%. The company told investors it expected slow PC demand to continue and that the situation would be the same as before the pandemic.

While announcing the layoffs last week, Microsoft said the renovation costs would amount to $1.2 billion, including severance, termination of real estate leases and implementation of “changes.” for our hardware portfolio,” which primarily includes the Surface line of tablets and laptops. Device sales fell 39% last quarter, some of which was blamed on unspecified “execution challenges” in launching new products in its Surface line.

Mr. Iversen said the company’s advertising revenue, which includes search engine Bing and LinkedIn, performed a bit worse than expected.

The results also show that costs continue to increase due to foreign currency fluctuations, with a strong dollar reducing sales gains by 5 percentage points.