Microsoft revenue rises 2 percent, but profit falls 12 percent

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

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

Both were below Wall Street expectations, according to FactSet. Microsoft’s stock price initially soared more than 4 percent in after-hours trading, largely thanks to its cloud computing business, but lost those gains after Amy Hood, Microsoft’s chief financial officer, told said on a call with investors 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 remain wary of buying new products.

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

“We saw strong execution in many regions of the world, however performance in the US was weaker than expected,” Ms. Hood said.

Wall Street has been trying to separate economic woes from Microsoft’s performance, said Brett Iversen, who heads investor relations for the company. “We are focused on what we can control, which is the execution side,” he said.

The past few months have been turbulent for Microsoft. In December, US regulators challenged its $69 billion deal to acquire video game maker Activision, and last week it began laying off some 10,000 workers.

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

Satya Nadella, CEO of Microsoft, emphasized the urgency with which the company pursues AI. “We fundamentally believe that the next wave of platforms will be AI,” he said on a call with Wall Street analysts, 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. Because much cloud computing is often billed based on the computing power a customer uses, helping customers become more efficient can reduce Microsoft’s sales in the short term. But Mr. Nadella has argued that he also helps prove the value of cloud computing in allowing customers to “do more with less.”

The biggest slowdown came from Microsoft’s personal computing business, where sales fell 19 percent and operating income fell 47 percent. The business boomed during the early part of the pandemic. But shipments of new PCs globally have been at a near free fall for months, and sales of the Windows operating system installed on new computers fell 39 percent. The company told investors it expected sluggish demand for PCs to persist and look more like it was before the pandemic.

In announcing the layoffs last week, Microsoft said renewal costs would reach $1.2 billion, including severance, termination of real estate leases, and making “changes to our hardware portfolio,” which consists primarily of in its line of Surface tablets and laptops. Device sales fell 39 percent last quarter, part of which was attributed to unspecified “execution challenges” in launching new products in its Surface line.

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

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