Microsoft ended 2022 with a quarter of record revenue but slowing growth and falling profitability. The sharp increase in operating costs weighed on results and helps explain the unprecedented downsizing the company has initiated, which will mean laying off about 10,000 employees, about 5% of the workforce. Despite this, the company’s financial health is enviable. Between October and December (this is the second quarter of its fiscal year), it wagered a total of $52,747 million, up 2% from a year earlier, and posted a profit of $17,371 million, down 2%.
Revenue growth is the lowest in five years (since declining in the quarter ended June 30, 2017), but some of this can be attributed to the dollar’s strength against other currencies. Translated into dollars, these sales add up to less in weaker currencies. Excluding the currency impact, billing would have increased by 7%.
Although the gross margin is deteriorating somewhat, the gross margin is still growing, but this is what causes the increase in administrative expenses (+7%), sales and marketing (+6%) and especially research and development (+19%), the operating profit should down 8% and net income down 12%. Without the currency effects, the decline in earnings would have been lower at 4%.
This heavy investment in R&D allows the company to prepare for the future, although Microsoft has already changed the profile of the company. Sales of products (such as office programs) are declining and the company is increasingly dependent on services, particularly in the business market, which shields it somewhat from the slowdown in consumption due to high inflation. Cloud computing is the major driver of results and artificial intelligence is the clear commitment to the future.
Microsoft Cloud revenue was $27.1 billion, up 22% (up 29% at constant currencies). Sales of Windows and other programs installed directly on computers are falling sharply, but services (including Windows 365), especially servers and Azure cloud computing, are growing strongly. Although its weight in the group is lower, LinkedIn, the social network for professionals, increased its income by 10%, while that of Xbox (its video games) fell by 12%.
“The next great wave of computing is upon us as Microsoft Cloud transforms the world’s most advanced models of artificial intelligence into a new computing platform,” said Satya Nadella, Microsoft president and CEO, in a statement. “We are committed to helping our customers use our platforms and tools to do more with less today and innovate for the future in the new era of artificial intelligence.”
As part of that commitment, the company just agreed to a multi-year investment of approximately $10,000 million in OpenAI, the company that developed the ChatGPT artificial intelligence tool.
For the entire first half of its fiscal year (July to December), Microsoft achieved record sales of $102,869 million (+6%) and net profit of $33,981 million (-13%). Net income is again weighed down by currency and cost increases, coupled with a higher income tax provision.
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