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Microsoft Revenue Up 2 Percent, but Profit Drops 12 Percent

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Microsoft on Tuesday reported its slowest growth in six years and cautioned that a broader slump will proceed as each consumers and businesses put the brakes on spending.

The technology giant said revenue increased 2 percent from a 12 months earlier to $52.7 billion for the three months that resulted in December. Profit fell 12 percent to $16.4 billion. 

Each were below Wall Street expectations, in keeping with FactSet. Microsoft’s share price initially shot up greater than 4 percent in after hours trading, thanks largely to its cloud-computing business, nevertheless it lost those gains after Amy Hood, Microsoft’s chief financial officer, said in a call with investors that latest business slowed in December. The corporate also said that it expects growth to proceed to slow in the present quarter, which ends March 31, as business customers proceed to be cautious about buying latest products.

Investors have been closely watching Microsoft’s cloud computing business and Azure, its flagship cloud product, due to their importance to the corporate’s future. In October, the corporate told investors to expect Azure’s growth to slow five percentage points within the quarter. But Azure sales growth slowed barely less, to 31 percent, which was higher than analysts feared, and the general segment it calls Intelligent Cloud was up 18 percent, roughly consistent with expectations.

“We saw strong execution in lots of regions around the globe, nonetheless, performance within the U.S. was weaker than expected,” Ms. Hood said.

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Wall Street has been attempting to separate economic issues from how Microsoft is performing, said Brett Iversen, who heads investor relations for the corporate. “We’re focused on what we will control, which is the execution side,” he said.

The past several months have been turbulent for Microsoft. In December, its $69 billion deal to amass the video game maker Activision was challenged by regulators in the US, and last week it began shedding about 10,000 employees.

On Monday, Microsoft announced a significant latest investment in OpenAI, the start-up behind ChatGPT and other generative artificial intelligence breakthroughs, and signaled plans to incorporate A.I. in an array of Microsoft products.

Satya Nadella, Microsoft’s chief executive, emphasized the urgency with which the corporate is pursuing A.I. “We fundamentally consider that the subsequent platform wave goes to be A.I.,” he said on a call with Wall Street analysts, while adding that Microsoft is moving aggressively to “catch the wave.”

He said the corporate is attempting to construct long-term loyalty from customers by helping them operate more efficiently. Because much of cloud computing is usually billed based on how much computing power a customer uses, helping customers be more efficient can reduce Microsoft’s sales within the short term. But Mr. Nadella has argued that it also helps prove the worth of cloud computing to let customers “do more with less.”

The largest slowdown got here from Microsoft’s personal computing business, where sales fell 19 percent and operating income fell 47 percent. The business boomed throughout the first a part of the pandemic. But shipments of recent PCs globally have been in a near free fall for months, and sales of the Windows operating system installed on latest computers declined 39 percent. The corporate told investors it expected slow PC demand to persist and that it will look more prefer it did before the pandemic.

While announcing the layoffs last week, Microsoft said revamping costs would hit $1.2 billion, including severance, ending real estate leases and making “changes to our hardware portfolio,” which primarily consists of its line of Surface tablets and laptops. Sales of devices were down 39 percent last quarter, a few of which it blamed on unspecified “execution challenges” in launching latest products in its Surface lineup.

The corporate’s promoting revenue, which incorporates its Bing search engine and LinkedIn, performed barely worse than it expected, Mr. Iversen said.

The outcomes also showed continued costs from foreign currency fluctuations, with the strong dollar cutting sales growth by five percentage points.

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