Microsoft profit tops estimates as Azure cloud unit proves resilient

MICROSOFT’S second-quarter profit topped analysts’ estimates, helped by strength in its Azure cloud-services business even as demand slumped for personal computer and corporate software. Shares rose about 4 per cent in late trading.

Adjusted profit was US$2.32 a share in the period ended Dec 31, and overall sales rose 2 per cent to US$52.7 billion. the company said in a statement. That compared with average analysts’ projections for US$2.30 a share in earnings and US$52.9 billion in revenue, according to a Bloomberg survey. In Microsoft’s closely watched Azure cloud-computing business, sales gained 38 per cent, compared with predictions for a 37 per cent increase, excluding the impact of currency fluctuations.

Microsoft last week said it’s firing 10,000 workers. In the past quarter, the software giant’s growth engines have faltered as corporate customers became warier of spending in an uneven economic environment. Still, Tuesday’s (Jan 24) quarterly results underscored the software maker’s resilience, thanks to relatively steady demand for corporate cloud-computing services, even if gains are less robust. Azure’s durability helped the company report growth even as sales of Windows software to PC makers fell sharply amid a shrinking market.

“The sentiment has gotten considerably worse than the last three months,” said Gil Luria, an analyst at DA Davidson. The quarter’s results may have been a “relief to the stock because actual expectations on the downside are even lower than that”.

Microsoft said it recorded a charge of US$1.2 billion, or 12 cents a share, in the latest quarter, with US$800 million of that related to the job cuts, which will affect less than 5 per cent of its workforce. The Redmond, Washington-based company said last week the charge will include severance, “changes to our hardware portfolio” and the cost of consolidating real estate leases.

The company’s shares rose as high as US$254.79 in extended trading following the report, after closing at US$242.04 in New York. The stock declined 29 per cent in 2022, compared with a 20 per cent decline in the Standard & Poor’s 500 Index.

After years of double-digit revenue gains fuelled by Microsoft’s accelerating cloud business, and robust growth during the technology spending spree of the Covid-19 pandemic, chief executive officer Satya Nadella acknowledged that the industry is going through a period of deceleration and will need to adjust.

“During the pandemic, there was rapid acceleration. I think we’re going to go through a phase today where there is some amount of normalisation in demand,” Nadella said in an interview at the World Economic Forum in Davos, Switzerland, earlier this month. “We will have to do more with less — we will have to show our own productivity gains with our own technology.”

Total cloud revenue in the period rose 22 per cent to US$27.1 billion, Microsoft said in the statement.

SEE ALSO

Microsoft invests US$10b in ChatGPT maker OpenAI

Revenue from PC-centred products, including Microsoft’s Windows operating system and Office productivity software, also slackened along with computer shipments. Sales of Windows to PC makers plummeted 39 per cent in the period. Worldwide PC unit sales plunged 29 per cent in the December quarter from a year earlier, according to Gartner, the biggest drop since the market research firm began tracking in the mid-1990s.

“We’re definitely in the hangover phase of the big PC cycle that work-from-home led during the Covid pandemic,” said DA Davidson’s Luria. “Everybody has a new PC right now. They’re not buying a new one.”

Microsoft’s revenue breakdown by division:

• Productivity and Business Processes revenue US$17 billion; estimate US$16.81 billion
• Intelligent Cloud revenue US$21.5 billion; estimate US$21.4 billion
• More Personal Computing revenue US$14.2 billion; estimate US$14.7 billion BLOOMBERG