microsoft corp MSFT -0.22% last quarter saw its slowest revenue growth in more than six years 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 would be the company’s lowest revenue growth since the quarter ended in June 2016.
Financial analysts polled by FactSet had predicted that the company would post revenue of $52.99 billion and net income of $17.51 billion for the period.
Microsoft shares rose about 4% in after-hours trading after the results were announced. Growth in the company’s cloud business was slightly better than some investors were expecting, some analysts said.
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.
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The software giant 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 the company 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 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.
Photos: Tech layoffs across the industry
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.
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 several consecutive quarters of year-over-year revenue growth of 50% or more for its cloud computing platform Azure, the world’s #2 cloud behind Amazon.com Inc. While Azure and the other cloud services Microsoft’s remain the main engine behind the company’s growth, demand is not as high as it was a year ago.
“The debate going forward is about the pace at which people will move workloads to the cloud,” said Brad Reback, analyst at Stifel, Nicolaus & Co. “Now that’s the big debate – what’s the sustainable growth rate here? “
Microsoft’s Intelligent Cloud division, which encompasses the Azure cloud computing business, saw a surge during the pandemic as app usage increased. Usage has since cooled and customers have become more cautious about their cloud bills, Mr Reback said.
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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.
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 beyond users of its own Xbox consoles and subscription services access Activision’s games. 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.
Write to Tom Dotan at [email protected]
Write to Tom Dotan at [email protected]
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