Microsoft posted its slowest growth in six years on Tuesday and warned that the broader recession will continue as consumers and businesses rein in spending.
The tech giant said revenue rose 2% to $52.7 billion in the three months to December from a year earlier. profit decline 12% to $16.4 billion.
Both fell short of Wall Street expectations, according to FactSet. Microsoft shares initially rose more than 4 percent in after-hours trading, largely thanks to its cloud computing business, but the company’s shares rose after Chief Financial Officer Amy Hood said on a conference call with investors that new business slowed in December. The shares gave back those gains. The company also said it expected growth to continue to slow in the quarter ended March 31, as enterprise customers continued to be wary of buying new products.
Investors have been paying close attention to Microsoft’s cloud computing business and its flagship cloud offering, Azure, because of their importance to the company’s future. In October, the company told investors it expected Azure’s growth to slow by 5 percentage points this quarter. But Azure’s sales growth slowed slightly to 31%, better than analysts’ fears, while its overall segment, known as intelligent cloud, rose 18%, roughly in line with expectations.
“We saw strong execution in many parts of the world, however, the U.S. was below expectations,” Ms Hood said.
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Wall Street has been trying to separate economic troubles from Microsoft’s performance, said Brett Iverson, the company’s head of investor relations. “We’re focusing on the things we can control, which is the execution,” he said.
The past few months have been tumultuous for Microsoft. Its $69 billion acquisition of video game maker Activision in December was questioned by US regulators, and last week it began laying off about 10,000 jobs.
On Monday, Microsoft announced a major new investment in OpenAI, the startup behind ChatGPT and other generative AI breakthroughs, and said it plans to incorporate AI into a range of Microsoft products.
Microsoft CEO Satya Nadella stressed the urgency for the company to pursue AI. “We fundamentally believe that the next wave of platforms will be AI,” he said on a conference call with Wall Street analysts. , while adding that Microsoft is moving aggressively to “catch the wave.”
The company is trying to build long-term customer loyalty by helping them operate more efficiently, he said. Because much cloud computing is typically billed based on how much computing power customers use, helping customers be more efficient could reduce Microsoft’s sales in the short term. But Mr Nadella argues that it also helps prove the value of cloud computing, allowing customers to “do more with less”.
The biggest slowdown came from Microsoft’s personal computing business, where sales fell 19% and operating income fell 47%. The business thrived during the first phase of the pandemic.But global shipments of new PCs have been at free fall in recent months, sales of the Windows operating system installed on new computers fell 39%. The company told investors it expects PC demand to continue to slow and look more like it did before the pandemic.
While announcing the layoffs last week, Microsoft said the revamp would cost $1.2 billion, including severance pay, termination of real estate leases and “changing our hardware mix,” which primarily includes its 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.
The company’s advertising revenue, including its Bing search engine and LinkedIn, performed slightly below expectations, Mr. Iverson said.
The results also showed that foreign exchange volatility led to continued cost increases, with a strong dollar shaving five percentage points off sales growth.