Microsoft’s dour forecast for revenue growth spooks investors

NEW YORK: Microsoft Corp on Tuesday (Oct 25) projected second-quarter revenue below Wall Street targets across its business units, fanning fears stoked by a slump in personal computer sales and easing growth in its cloud computing business.

Shares of the software giant fell 7% in extended trading.

The maker of Windows has seen demand slide for its ubiquitous computer software as the spike in inflation forces businesses and consumers to pull back on spending, while a strong dollar has weighed on growth of its Azure cloud unit.

The company said it expects the Intelligent Cloud business to pull in revenue of US$21.25 billion to US$21.55 billion (RM100.6 billion to RM102.0 billion) in the second quarter, compared with analysts’ estimates of US$22.01 billion, according to Refinitiv IBES data. Microsoft’s fiscal second quarter is the current quarter.

“We expect Azure revenue growth to be sequentially lower by roughly five points on a constant currency basis,” chief financial officer Amy Hood told analysts on a conference call.

Current-quarter revenue from the personal computing unit was projected between US$14.5 billion and US$14.9 billion, below estimates of US$16.96 billion.

Revenue growth in the first quarter was Microsoft’s lowest in five years. But at US$50.12 billion, up 11% year-on-year, the figure was slightly above analysts' expectations of US$49.61 billion

“The PC market was worse than we expected in Q1,” Brett Iversen, head of Microsoft’s investor relations, told Reuters. “We continued to see that deteriorate throughout the quarter, which impacted our windows OEM business.”

Windows OEM business, which includes the operating software Microsoft sells to PC makers, dropped 15% year-on-year. Iversen said part of the business did not have much of an impact from foreign-exchange headwinds and the drop was mainly PC-market driven.

Still, demand held up for its diverse portfolio of products including Outlook and Teams that have made Microsoft essential to businesses adopting flexible work models.

The Azure cloud-computing unit also benefited from demand driven by companies seeking to digitize their operations to cut costs and cope with the economic slowdown.

Azure grew 35% in the three months ended Sept 30, but it missed the 36.5% analyst target compiled by Visible Alpha due to a stronger dollar. Excluding foreign-exchange factors, Azure was up 42%.

Microsoft’s broader Intelligent Cloud division posted a 20% rise in revenue to US$20.33 billion, almost in line with estimates of US$20.37 billion, according to Refinitiv.

“We continue to see healthy demand across our commercial businesses including another quarter of solid bookings,” Hood said in the earnings statement.

Net income fell to US$17.56 billion, or US$2.35 per share, during the quarter ended Sept 30, from US$20.51 billion, or US$2.71 per share, a year earlier. – Reuters

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