Microsoft CEO Satya Nadella leaves the Elysee Palace after meeting with French President Emmanuel Macron in Paris on May 23, 2018.
Aurelien Morissard | IP3 | Getty Images
Microsoft Executives told analysts on Tuesday to expect a continuation of the weak momentum of business that emerged in December, which hurt the software maker’s company. Fiscal Second Quarter Results,
“In our commercial business we expect to see business trends in the third quarter that we saw in late December,” Amy Hood, Microsoft’s chief financial officer, said on a conference call.
Specifically, the company saw lower-than-expected growth in Microsoft 365 productivity software subscriptions, identity and security services, and business-oriented Windows products.
Growth in consumption of Azure, the company’s cloud computing service, has also slowed, he said.
The company sells products such as Xbox consoles and Surface PCs to consumers, but most of its revenue comes from commercial customers such as companies, schools and governments. That’s where the effect will be seen. One metric called the Microsoft cloud — including Azure, commercial subscriptions to Microsoft 365, commercial LinkedIn services and Dynamics 365 enterprise software — now represents 51% of total sales.
CEO Satya Nadella said large organizations are optimizing their spending on cloud services, a key area of growth for Microsoft. that behavior also played into fiscal first quarterAnd in October, Amazon also talked about how it’s helping cloud customers optimize their cost,
Nadella said Microsoft made changes to the product to highlight places where customers could lower their cloud bills.
Hood said that Azure development will be more slow. For the full December quarter, revenue from Azure and other cloud services grew 42% in constant currency. But in December, Hood said, growth was in the mid-30% range in constant currency, and she anticipates a further deceleration of 4-5 percentage points in the current quarter, which ends in March.
Hood said the downturn that began in December should carry over to third-quarter results for Windows commercial products and cloud services, a category that includes Windows volume licenses for businesses. His forecast included flat revenue for Windows commercial products and cloud services, compared to a 3% decline in the fiscal second quarter.