Microsoft revenue rises 2%, but profits fall 12%

Microsoft reported its slowest growth in six years on Tuesday and warned that a broader recession will continue as consumers and businesses rein in spending.

The tech giant said its revenue rose 2% from a year earlier to $52.7 billion for the three months ending December. Profit fell 12% to $16.4 billion.

Both were below Wall Street expectations, according to FactSet. Microsoft’s stock price initially rose more than 4% after hours trading, largely on the back of its cloud computing business, but it lost those gains after Microsoft Chief Financial Officer Amy Hood said on an investor call that new business slowed in December. . The company also said it expects growth to continue to slow in the current quarter, which ends March 31, as business customers continue to be cautious about buying new products. .

Investors are watching Microsoft’s cloud computing business and Azure, its flagship cloud product, closely because of their importance to the company’s future. In October, the company told investors to expect Azure’s growth to slow by five percentage points in the quarter. But Azure’s sales growth slowed slightly less, to 31%, which was better than analysts feared, and the overall segment it calls Intelligent Cloud grew 18%, roughly in line expectations to.

“We saw strong execution in many regions around the world, but performance in the United States was weaker than expected,” Ms. Hood said.

Wall Street has tried to separate economic issues from Microsoft’s performance, said Brett Iversen, who heads up investor relations at the company. “We focus on what we can control, which is the execution side,” he said.

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

On Monday, Microsoft announced a major new investment in OpenAI, the startup behind ChatGPT and other breakthroughs in generative artificial intelligence, and announced plans to include AI in a range of products. Microsoft.

Satya Nadella, Microsoft’s chief executive, underscored the urgency with which the company is pursuing AI “We fundamentally believe that the next wave of platforms will be AI,” he said on a call with Wall Street analysts, while adding that Microsoft is moving aggressively. to “catch the wave”.

He said the company is trying to build long-term customer loyalty by helping them operate more efficiently. Since much cloud computing is often priced based on the computing power a customer uses, helping customers be more efficient can reduce Microsoft’s sales in the short term. But Mr Nadella argued that it also helps prove the value of cloud computing in enabling customers to “do more with less”.

The biggest slowdown came from Microsoft’s personal computing business, where sales fell 19% and operating profit 47%. The business boomed during the first part of the pandemic. But shipments of new PCs worldwide have been plummeting for months, and sales of the Windows operating system installed on new PCs are down 39%. The company told investors it expects sluggish PC demand to persist and look more like it did before the pandemic.

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

The company’s advertising revenue, which includes its Bing search engine and LinkedIn, was slightly worse than expected, Iversen said.

The results also showed continued costs from foreign currency fluctuations, with the strong dollar reducing sales growth by five percentage points.