Microsoft Profits Slump - The New York Times

SEATTLE — Uncertainty and challenges in the global economy have hit Microsoft, which announced on Tuesday quarterly income which failed...


SEATTLE — Uncertainty and challenges in the global economy have hit Microsoft, which announced on Tuesday quarterly income which failed to meet Wall Street’s expectations and its own expectations.

The tech giant said it earned $51.9 billion in revenue in the quarter ended June 30, up 12% from a year earlier. Profit rose 2% to $16.7 billion.

The results even missed Microsoft’s reduced expectations. At the beginning of June, the company lowered its guidance for the quarter to take into account the strong american dollar.

“We’re obviously incredibly bullish on just about everything we’ve got,” Chris Capossela, the company’s chief marketing officer, said after the publication of the revised guidelines. “It’s something we can’t control.”

Since then, conditions appear to have deteriorated further. Foreign currency challenges spurred by the war in Ukraine and broader economic uncertainty cost Microsoft $595 million in the quarter as it converted sales in Europe, Japan and elsewhere to US dollars. And slowdowns in personal computer production in China and lower consumer demand have led to more than $300 million in sales of its Windows operating system that comes preinstalled on new computers.

A slowdown in ad spending on LinkedIn and on Microsoft’s search products led to a drop in revenue of more than $100 million.

Had it not been for the currency issues, Microsoft’s flagship cloud computing platform, Azure, would have grown 46%. Instead, it rose 40%, below what investors expected. Without the strengthening dollar, the company’s two main lines of business, which it calls productivity and business processes, and intelligent cloud, would have met the initial guidance it provided to investors in April.

“Business demand overall was pretty healthy,” Microsoft investor relations manager Brett Iversen said Tuesday. “The long-term thesis of people wanting to move to the cloud to digitize their business, to be able to do more, or to be able to save money – it all still seems intact.”

He said this was reflected in strong long-term reservations commitments, including a record number of Azure transactions worth more than $1 billion.

Overall revenue from Microsoft’s commercial cloud offerings, which also includes Office 365 subscriptions, increased 28% to $25 billion.

“We’re not immune to what’s happening in the broader macro,” Satya Nadella, the company’s chief executive, said in a call with Wall Street analysts. But he said companies’ continued interest in using cloud services, which partly charge based on consumption, reflects companies’ efforts to settle for less.

“Moving to the cloud is the best way to shape your spend with demand uncertainty,” he said.

Microsoft’s personal computing business rose 2% to $14.4 billion, driven by a 2% decline in sales of its preinstalled Windows operating system on personal computers. Investors were willing to see some weakness because PC shipments are down of weakening demand and supply chain issues caused by coronavirus lockdowns in China.

Revenue from Xbox content and services fell 6% as consumers spent less time playing video games.

With unemployment remaining near 50-year lows, LinkedIn, the professional social network Microsoft bought in 2016, grew 26% from 34% in the previous quarter.

The company said it had $126 million in expenses related to reducing its operations in Russia, and another $113 million to pay severance payments to employees it laid off.

Mr Iversen said the layoffs were in “a small number of roles” and the company planned to increase its workforce in the new financial year, which started on July 1.

On the call with Wall Street analysts, Mr. Nadella and Amy Hood, Microsoft’s chief financial officer, said that beyond the strong dollar, the company expected certain challenges to persist, such as reduced demand for personal computers, fewer paid job postings on LinkedIn, and lower demand. from small and medium enterprises.

But they said Microsoft would continue to invest in markets where it had advantages and expected double-digit revenue growth next year, even as currency headwinds continued. The company’s stock price rose about 5% after market trading.

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