New business growth slows in December, says Microsoft gives weak guidance

Microsoft The company issued a disappointing revenue forecast for the current quarter in its earnings call on Tuesday, triggering a stock price reversal after the stock debuted on better-than-expected earnings for the December quarter.

The technology company sees business declines in the core Windows and Office areas through the end of 2022, CEO Satya Nadella told analysts on a conference call.

Here’s how the company did:

  • Earning: $2.32 per share, adjusted, versus the $2.29 per share expected by analysts, according to Refinitiv.
  • Revenue: $52.75 billion, versus $52.94 billion as analysts were expecting, according to Refinitiv.

Microsoft called for fiscal third-quarter revenue of $50.5 billion to $51.5 billion, which works out to 3% implied growth, while analysts polled by Refinitiv expected $52.43 billion. The company’s finance chief Amy Hood said the PC market will contract again, which should lead to a roughly 17% year-over-year decline in the more personal computing business segment that characterizes Windows.

For the second quarter of the fiscal year, total revenue grew 2% year-on-year in the quarter ended December 31, the slowest rate since 2016. Statement, Net income fell to $16.43 billion from $18.77 billion in the year-ago quarter. The company took a $1.2 billion charge in the quarter in connection with its decision 10,000 job cuts, modify its hardware lineup and consolidate leases. The fee covers $800 million in employee severance costs.

Business weakened in December, including an increase in consumption of Azure cloud services, Hood said on the call. Hood said that during that month, new business growth was lower than management expected for Microsoft 365 productivity software subscriptions, Windows commercial products and enterprise mobility and security offerings.

“In our commercial business, we expect the trading trend seen at the end of December to continue in the third quarter as well,” he added.

Microsoft’s Intelligent Cloud segment had revenue of $21.51 billion, up 18% and slightly above the consensus of $21.44 billion among analysts polled by StreetAccount. The unit includes Azure Public Cloud, Windows Server, SQL Server, Nuance, and Enterprise Services. Revenue from Azure and other cloud services, which Microsoft does not report in dollars, increased 31%, slightly higher than the 31% average estimate from analysts polled by CNBC and StreetAccount. Last quarter, the category grew 35%.

Nadella said that customers are looking to save money through optimization of existing workloads, and they are also more cautious about new workloads.

Hood said he expects Azure cloud growth to slow again in the fiscal third quarter. It was in the mid-30% range in constant currency in December, she said, and she sees it going down 4-5 percentage points in the fiscal third quarter. Analysts polled by StreetAccount predicted Azure growth of 34% in constant currency. Amazon Shares rose 3% in after-hours trading immediately after Microsoft’s announcement, before turning negative.

The Productivity and Business Processes segment, which includes Microsoft 365 (formerly known as Office 365), LinkedIn and Dynamics, delivered revenue of $17 billion, up 7% and above the StreetAccount consensus of $16.79 billion. Nadella said the Teams communication app now has more than 280 million monthly active users.

The More Personal Computing segment, featuring Windows, Xbox, Surface and search advertising, contributed $14.24 billion, representing a revenue decline of 19%. Windows license sales to device makers fell 39% year over year, worsened by a 15% drop in the fiscal first quarter. technology industry researcher Gartner estimated That during the fourth quarter of 2022 was the slowest growth of the PC business since the company started tracking the market in the mid-1990s.

Hood said its Surface group faced performance challenges in the quarter, during which the company introduced surface pro 9,

Nadella said Microsoft projects more than $20 billion in security revenue in 2022, up about 33% from 2021, when the growth rate was about 45%.

Microsoft’s report kicks off earnings season for mega-cap tech companies, with the Nasdaq coming off its worst year since 2008 and its first four-quarter slump since the dot-com crash. Along with the Microsoft layoffs, Amazon, Alphabet And meta All recently announced significant job cuts as they expanded the bull market in hiring and tech during the COVID pandemic. Meta is scheduled to report results next Wednesday, a day after Alphabet, Amazon and apple,

The decision to reduce headcount at Microsoft “shows a commitment to margin defense despite top-line volatility,” analysts at Raymond James wrote in a note to clients on Monday. They recommend buying Microsoft shares.

Quarterly, US Federal Trade Commission sued microsoft to shelve its pending $69 billion acquisition of the game publisher activism blizzardWhile the US Department of Defense awarded with Microsoft and three other companies have signed cloud contracts worth a combined $9 billion. “We are continuing to engage with regulators reviewing the transaction and are working toward closing it in fiscal year 2023, subject to obtaining necessary regulatory approvals and the satisfaction of other customary closing conditions,” Microsoft said in a statement. Admission,

Barring the after-hours move, Microsoft stock is flat so far this year, while the S&P 500 stock index is up 4%.

Correction: This story has been updated to reflect that Microsoft’s conference call with analysts will begin at 5:30 p.m. ET on Tuesday. The previous version gave the wrong time.

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