Microsoft’s revenues fell last quarter due to economic concerns

Microsoft’s revenues fell last quarter due to economic concerns

Microsoft Corp.

MSFT -0.22%

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

Sales at the Redmond, Washington-based company rose 2% year-over-year to $52.7 billion in the three months through December 31. Net profit fell 12% to $16.4 billion. That’s the company’s lowest revenue growth since the quarter ended June 2016.

“Organizations are cautious given the macroeconomic uncertainty,” said Microsoft CEO Satya Nadella during an earnings call on Tuesday.

The software company is the first of the tech titans to announce its quarterly results. It and others recently announced layoffs of thousands of people due to a sudden lowering of expectations about future demand. Last week, Microsoft announced plans to cut 10,000 jobs in response to the global economic slowdown, the largest layoffs at the company in more than eight years.

Microsoft said it expects revenue of about $51 billion this quarter, up 3% from the same quarter last year. The shares, which had initially risen based on results in after-hours trading, gave up gains after the company announced its outlook.

Microsoft’s Intelligent Cloud business, which includes the Azure cloud computing business, grew 18% to $21.51 billion. Azure grew 31%, slightly above some analysts’ expectations.

Microsoft is one of the top cloud computing services companies that has boomed during the pandemic. In the midst of the health crisis, Microsoft reported several quarters in a row of 50% or more year-over-year revenue growth for its cloud computing platform, the world’s No. 2 behind Amazon.com from Inc

cloud. While Azure and Microsoft’s other cloud services remain the main driver of the company’s growth, the question is no longer what it was a year ago as customers try to control their cloud computing costs.

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

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

Microsoft was shielded from much of the recent downturn because it derives most of its revenue from businesses rather than from advertising and consumer spending. However, it is not immune to the end of pandemic trends that boosted demand, hiring and investment, as well as economic headwinds such as high interest rates.

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Demand for software for the Windows operating system has fallen due to sales of the PCs that use it. Households, businesses and governments that bought computers during the pandemic are scaling back.

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

Worldwide PC shipments were down 29% in the fourth quarter of last year compared to the previous year, according to preliminary data from research firm Gartner Inc. Financial analysts do not expect that trend to improve until 2024.

Photos: Tech layoffs across the industry

Microsoft said its video game revenue was down 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 experiencing a slowdown as pandemic-related restrictions ease and people spend less time at home.

The company made a huge bet on the industry 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 because the deal would give Microsoft the ability to control how consumers beyond users of their own Xbox consoles and subscription services access Activision’s games. Microsoft subsequently filed a rebuttal, saying the deal will not harm competition in the video game industry. It could be months before a decision is made in the US and elsewhere whether the deal will go through.

After the close of regular stock trading on Tuesday, shares of Microsoft were down about 18% year-over-year, broadly in line with the tech-heavy Nasdaq Composite Index.

Write to Tom Dotan at tom.dotan@wsj.com

Write to Tom Dotan at tom.dotan@wsj.com

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