Microsoft’s quarterly and especially the outlook sound the alert in the computer and cloud market.
The American software giant announced accounts that highlighted the weakening of growth in its core Windows and Office businesses, as confirmed by CEO Satya Nadella during the call with analysts. MSFT stock, which staged an initial rally immediately after the quarterly publication – looking at better-than-expected earnings during the fourth quarter of the year – has turned around, discounting the forecasts of the leaders for the current quarter.
“Across our commercial businesses, we expect the trends we witnessed in December to continue into the third (fiscal) quarter,” said Amy Hood, Microsoft chief financial officer, bluntly. On the other hand, Hood expects a further contraction in the personal computer (PC) market, predicting lower than expected growth in the Microsoft 365 business, the cloud designed to help increase productivity with Office apps, intelligent cloud services and security advanced. Microsoft 365 includes, specifically, Latest Productivity Apps, latest productivity apps, such as Microsoft Teams, Word, Excel, PowerPoint, Outlook, OneDrive, and more. You are also cautious about the Azure cloud computing business, which also slowed in the fiscal second quarter of Big Tech USA (fourth quarter of 2022).
It must be said that Microsoft has been talked about a lot lately: in the last few days, the great announcement of greater investments in the OpenAI artificial intelligence laboratory has arrived; investments that will have a multi-year duration and which mark the third phase of the partnership between the two companies, following the previous investments by Microsoft in 2019 and 2021. Microsoft, through its spokesman, said that the renewal of the partnership with OpenAI, known for its ChatGPT, will accelerate breakthroughs in AI (artificial intelligence) and help both companies commercialize advanced technologies in the future. It should be noted that ChatGPT is OpenAI’s artificial intelligence system launched last November and has quickly become very popular in the last month, thanks to its excellent interaction and machine learning capabilities.
But let’s get to the quarterly numbers:
Software giant Microsoft announced it ended its fiscal second quarter — fourth quarter of 2022 ended Dec. 31 — with net income down to $16.43 billion, compared with $18.77 billion in the same period a year earlier. . A $1.2 billion charge weighed on Big Tech US’s quarterly report, which includes $800 million of liquidation costs that the group had to incur for the 10,000 announced workforce cuts.
Adjusted earnings per share came in at $2.32 per share, better than the $2.29 expected by analysts polled by Refinitiv.
Microsoft’s overall revenue climbed 2% year over year, posting the lowest growth since 2016 at $52.75 billion, just shy of the $52.94 billion estimated by analysts.
Capital expenditures came in at $6.27 billion, below the $6.63 billion forecast.
Specifically, Microsoft Intelligent Cloud segment revenue — which includes Azure public cloud, Windows Server, SQL Server, Nuance and Enterprise Services — rose 18% year over year to $21.51 billion, up from $21. 44 billion expected by the consensus of the analysts interviewed by StreetAccount.
Revenue from Azure and other cloud services, which Microsoft doesn’t report in dollars, rose 31%, slightly above analyst expectations of just under 31%. However, the pace of growth has slowed down compared to +35% in the third quarter of 2022 (first fiscal quarter for the US giant) and CFO Hood expects a slowdown in Azure’s turnover growth.
Microsoft’s Productivity and Business Processes segment, which includes Microsoft 365 (formerly known as Office 365), LinkedIn and Dynamics, reported revenue of $17 billion, up 7% and above the StreetAccount consensus of $16, 79 billion. CEO Nadella commented on the data by announcing that the APP Teams currently have more than 280 million active monthly users. However, looking forward, Hood expects Azure revenue growth to slow.
In the More Personal Computing segment, which includes Windows, Xbox, Surface and search advertising, revenues totaled $14.24 billion, down 19%. Notably, sales of Windows licenses to electronic device makers slipped 39% year over year, worse than the 15% decline suffered in the fiscal first quarter. In this regard, it is worth mentioning that the technology research firm Gartner has estimated for the PC market, for the span of the fourth quarter of 2022, the lowest growth in history, since it began monitoring data at mid 90s. The problem, warned Microsoft CEO Satya Nardella is that large organizations are trying to optimize the costs they incur for cloud services. And the cloud is a key growth sector for Big Tech USA.
The attitude of companies can be explained by the current economic context and market sentiment, characterized by the slowdown in growth, by the fear of further rate hikes by the Fed and other central banks which, it is feared, could translate into a recession in the world.
Microsoft has thus announced that it expects its fiscal third quarter, first quarter of 2023 revenue of between $50.5 billion and $51.5 billion, which it expects to grow up to 3%, lower than the $52.43 billion estimated by Microsoft. consensus of analysts.
Microsoft -MSFT- stock is under pressure in afterhours trading on Wall Street, down more than 1% to $239.58.