From the cloud to PCs, Microsoft’s predictions scare investors as the economy gets worse.
Microsoft’s business in the cloud, which is called Azure, has sped up revenue growth.
Microsoft Corp. (MSFT.O) said on Tuesday that all of its business units’ second-quarter revenue would be below what Wall Street expected. This raised concerns that macroeconomic headwinds are hurting the cloud business as well as the PC business.
Microsoft’s first-quarter revenue growth was the lowest it has been in five years, and shares of the software giant fell by 7% in extended trading.
Microsoft’s cloud business, called Azure, has been a huge part of the company’s revenue growth for years. But in the first quarter of 2023, that growth dropped to 35%, and the company thinks it will drop again in the current quarter, which is the second quarter. The stronger dollar meant that Microsoft didn’t meet the 36.5% analyst goal that Visible Alpha put together.
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Haris Anwar, a senior analyst at Investing.com, said, “If this slowdown in growth keeps up, it could hurt the case for investing in the company’s stock, which is seen as a safe haven during market turmoil.”
Refinitiv IBES data shows that analysts expect the Intelligent Cloud business to bring in $22.01 billion in revenue in the second quarter. The company said it expects the business to bring in $21.25 billion to $21.55 billion, which is a little less than what analysts expected.
On a conference call with analysts, Chief Financial Officer Amy Hood said, “We expect Azure revenue growth to be lower by about five percentage points from one quarter to the next.” That would be a growth of 37% if the value of the currency stayed the same, but it would be much less if foreign exchange rates were taken into account.
“In a weird way, everyone thought that when the pandemic hit, there would be a disaster. And that was not the case. But that impact was going to come at some point, and it’s coming now. An analyst at TECHnalysis Research named Bob O’Donnell said that even businesses that use the cloud can’t avoid the effects. Still, he said that Microsoft has a lot of different types of businesses and is in a good place to get through the hard times.
As a result of the rise in inflation, businesses and consumers are cutting back on spending, which hurts the company that makes Windows, which is used on most computers.
The personal computing unit was expected to bring in between $14.5 billion and $14.9 billion this quarter, which was less than the expected $16.96 billion.
Brett Iversen, who is in charge of investor relations at Microsoft, told Reuters, “The PC market was worse than we thought in Q1.” “That kept getting worse over the course of the quarter, which hurt our Windows OEM business.”
Microsoft’s OEM business, which includes the operating software it sells to PC makers and is part of Windows, fell 15% from one year to the next. Iversen said that foreign-exchange headwinds didn’t hurt the business as much as they could have, and that the drop was mostly caused by the PC market.
Still, demand for its wide range of products, like Outlook and Teams, which have made Microsoft an important part of businesses that use flexible work models, stayed strong.
Related: Mercedes-Benz and Microsoft are working together on a data platform for the supply chain.
In the first quarter, sales grew by $50.12 billion, which is 11% more than at the same time last year. The number was just a little bit higher than what analysts expected, which was $49.61 billion.
During the quarter that ended on September 30, net income dropped from $20.51 billion, or $2.71 per share, a year earlier to $17.56 billion, or $2.35 per share.
