Microsoft Corp said revenue growth in its cloud-computing business Azure would decelerate this quarter and warned of a further slowdown in corporate software sales, fueling concern about a steeper decline in demand for products that have driven its momentum in the past few years.
Shares erased earlier gains in late trading after Microsoft chief financial officer Amy Hood said Azure sales would this quarter slow by 4 or 5 percentage points from the end of the fiscal second quarter, when gains were at a mid-30s percentage.
That business had marked a bright spot in a lackluster earnings report for Microsoft, whose other divisions were held back by a slump in sales related to personal computer software and video games.
Photo: Bloomberg
Shareholders had earlier sent the stock up more than 4 percent, encouraged by signs of resilience in Microsoft’s cloud business even in a weaker overall market for software and other technology products.
The firm’s downbeat forecast brought the focus back to the software giant’s challenges as corporate customers hit the brakes on spending.
Revenue growth of 2 percent in the second quarter was the slowest in six years, and Microsoft last week said it is firing 10,000 workers.
Earlier on Tuesday, the company said adjusted profit in the quarter ended Dec. 31 was US$2.32 a share, while sales rose to US$52.7 billion.
That compared with average analysts’ projections for US$2.30 a share in earnings and US$52.9 billion in revenue, a Bloomberg survey showed.
Excluding currency impacts, Azure revenue gained 38 percent for the full quarter, slightly topping analyst predictions.
Microsoft said it recorded a charge of US$1.2 billion, or US$0.12 per share, in the latest quarter, with US$800 million of that related to the job cuts, which would affect fewer than 5 percent of its workforce.
The Redmond, Washington-based company last week said the charge would include severance, “changes to our hardware portfolio” and the cost of consolidating real-estate leases.
The company’s shares declined about 1 percent after executives gave their forecast on the conference call.
Earlier, they rose as high as US$254.79, after closing at US$242.04 in regular New York trading. The stock dropped 29 percent last year, compared with a 20 percent slide in the S&P500 index.
After years of double-digit percentage revenue gains fueled by Microsoft’s accelerating cloud business, and robust growth during the technology spending spree of the COVID-19 pandemic, CEO Satya Nadella said that the industry is going through a period of deceleration and would 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 normalization 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.”
Azure has been Microsoft’s most closely watched business for years, and has fueled a resurgence in revenue since Nadella took the helm in 2014 and oriented the company around the burgeoning cloud-computing market, in which it competes with Amazon.com Inc, Alphabet Inc’s Google and others.
Microsoft is turning to artificial intelligence applications to fuel more Azure demand.
Revenue from the Azure machine learning service has more than doubled for five quarters in a row, Nadella said.
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