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Microsoft is experiencing slowing growth in its cloud computing business.
Gerald Julian/AFP via Getty Images
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The company’s latest quarterly profit slightly beat expectations, sending the stock soaring in the closing hours of trading on Tuesday.
The company’s Azure cloud unit also performed slightly better than expected.
The stock rose 5% in late trading just after the earnings announcement.
Wall Street estimates the December quarter had sales of $53.1 billion and earnings per share of $2.29.
This is breaking news. Read the preview of Microsoft’s earnings below and check out the detailed analysis soon.
Investors may be getting a little nervous ahead of Microsoft’s quarterly results. And for good reason.
Microsoft (ticker: MSFT) will report earnings for the December quarter after the close of trading on Tuesday. He has two big issues that affect the company’s prospects.
For one thing, the personal computer market is in a slump. Sales of PCs and related peripherals surged during the pandemic, but then turned sharply. Research firm International Data Corporation recently estimated PC shipments as follows: was down 28% year-on-year in the December quarter. What started with sluggish demand for consumer PCs spread to the company as the company cut his IT spending amid the economic slowdown.
Meanwhile, cloud computing growth is slowing. Cloud computing businesses such as Microsoft Azure and Amazon Web Services are pay-as-you-go. This means customers can spend less on the cloud when their business slows down. This is part of the appeal of the cloud computing model.
Microsoft has seen slowing revenue growth in its Azure business for several quarters. It recently grew around 50% by the Sept. 2021 quarter, down to 35% by Sept. 2022.
One number that is likely to get the most attention from Wall Street is Azure’s currency-adjusted growth rate. Growth in the September quarter was 42% on a currency-adjusted basis, down from 46% in the June quarter. The Street expects 36.8% growth in the December quarter, falling to 33.7% in the March quarter. On an unadjusted basis, growth was 30.5% in the December quarter, declining to 27.8% in the March quarter.
One of the positives of the quarter for Microsoft, and for other companies with substantial operations outside of the United States, is that the dollar’s recent surge against other currencies has subsided. What was a headwind can turn into a tailwind, at least compared to expectations.
Earlier this month, Microsoft announced plans to cut 10,000 employees, or just under 5% of its total workforce. “[A]We’ve seen our customers accelerate their digital spending during the pandemic, and now they’re optimizing their digital spending so they can do more with less,” said Satya, CEO. Satya Nadella said in a blog post announcing the layoffs. “We also know that organizations in every industry and region are paying attention, as some parts of the world are in recession and others are anticipating it.”
The December quarter will cost $1.2 billion in severance payments, in addition to unspecified changes to the company’s hardware portfolio and office consolidation, the company said.
Microsoft’s revenue forecast for the December quarter is between $52.4 billion and $53.4 billion. The company has provided specific guidance for his three business segments, leaving it up to Street to add from there. Microsoft’s guidance calls for $16.6 billion to $16.9 billion in revenue from its productivity and business process segment, which includes Office and other application software. The company expects its intelligent cloud business, which includes Azure, to generate revenues of $21.25 billion to $21.55 billion, and its personal computing business, which includes gaming and Windows, to generate revenues of $14.5 billion to $14.9 billion.
Revenue for the December quarter is estimated at $53.1 billion and earnings per share at $2.29. The Street expects revenue of $16.8 billion in its productivity and business process segment. $21.5 billion for the intelligent cloud. Another $15 billion in personal computing.
Street’s total revenue for the March quarter was $52.6 billion, including $16.9 billion in productivity and business processes, $22.3 billion in intelligent cloud, and $13.6 billion in more personal computing at $2.35 per share. Includes dollar profits.
Microsoft shares fell 0.1% on Tuesday.
Write to Eric J. Savitz at eric.savitz@barrons.com.
