Microsoft revenue fell last quarter amid economic concerns

Microsoft corp

MSFT -0.22%

posted its slowest revenue growth in more than six years in its most recent quarter, as demand for its software and cloud services cooled amid concerns about the health of the global economy.

Revenue for the Redmond, Wash. company rose 2% year over year to $52.7 billion in the three months ended December 31. Net income fell 12% to $16.4 billion. That’s the company’s lowest revenue growth since the quarter ended in June 2016.

“Given the macroeconomic uncertainty, companies are exercising caution,” Microsoft CEO Satya Nadella said at an earnings call on Tuesday.

The software company is the first of the tech titans to report quarterly earnings. It and others recently announced the layoff of thousands of people to reflect a sudden drop in expectations of future demand. Last week Microsoft announced plans to cut 10,000 jobs in response to the global economic slowdown, the company’s biggest layoffs in more than eight years.

Microsoft expects revenue of about $51 billion this quarter, up 3% from the year-ago quarter. Its shares, which initially rose on the after-hours trading results, gave up gains after the company announced its guidance.

Microsoft’s intelligent cloud business, which includes its Azure cloud computing business, grew 18% to $21.51 billion. Azure grew 31%, slightly ahead of some analysts’ expectations. Microsoft’s chief financial officer, Amy Hood, warned that growth in the Azure business slowed at the end of the year and will continue to slow in the coming months.

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“We’re seeing clients exercise caution in this environment, and we’ve seen results soften in December,” Ms. Hood said.

Microsoft is one of the leading cloud computing service companies that has seen a boom during the pandemic. In the midst of the health crisis, Microsoft reported consecutive quarters of year-over-year revenue growth of 50% or more for its cloud computing platform, the world’s #2 behind Amazon.com inc

Cloud. While Azure and Microsoft’s other cloud services remain the main engine behind the company’s growth, demand isn’t as strong as it was a year ago as customers try to get a handle on their cloud computing costs to get.

The company has bet that the next wave of demand for cloud services could come from more companies and individuals using artificial intelligence. It has deepened its relationship with AI startup OpenAI, the company behind the Dall-E 2 image generator and the technology behind ChatGPT, which can answer questions and write essays and poetry.

“The age of AI is upon us and Microsoft is driving it,” Mr Nadella said on Tuesday.

Microsoft was spared much of the recent downturn because it gets most of its revenue from businesses rather than advertising and consumer spending. However, it’s not immune to the end of pandemic trends that accelerated demand, hiring and investment, and economic headwinds like high interest rates.

Demand for software for Windows operating systems has declined as the PCs that use them have been sold. Households, businesses and governments that bought computers during the pandemic are reducing their numbers.

That was reflected in revenue from Microsoft’s personal computing segment, which fell 19% to $14.24 billion. Sales related to the Windows operating system were down 39%, and sales of devices like the Surface tablets were down 39%.

According to preliminary data from research firm Gartner Inc., global PC shipments fell 29% year-on-year in the fourth quarter of last year. Financial analysts do not expect this trend to improve before 2024.

Photos: Tech layoffs across the industry

Microsoft said its video game revenue fell 12% during the quarter. Video games and Microsoft’s Xbox video game consoles are becoming increasingly important to the company. The video game industry is going through a slowdown as pandemic-related restrictions ease and people spend less time at home.

The company made a big bet on the sector a year ago with its $75 billion plan to acquire video game giant Activision Blizzard inc

Last month, the Federal Trade Commission sued to block the acquisition, saying the deal would give Microsoft the ability to control how consumers access Activision’s games outside of users of its own Xbox consoles and subscription services. Microsoft then filed a rebuttal, stating that the deal would not hurt competition in the video game industry. It could be months before decisions are made in the US and elsewhere on whether the deal goes through.

After regular stock trading ended on Tuesday, Microsoft stock was down about 18% from a year earlier, broadly in line with the tech-heavy Nasdaq Composite Index.

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Write to Tom Dotan at [email protected]

Write to Tom Dotan at [email protected]

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