Microsoft’s quarterly profits fell 12%, but its cloud computing business remained strong

Catherine Thorbecke, CNN

On Tuesday, Microsoft reported weaker-than-expected revenue and double-digit declines in profit over the last three months of last year, due to widespread economic uncertainty and declining demand for personal computers and software.

The tech giant reported quarterly revenue of $52.7 billion, up slightly 2% year-over-year, but slightly less than analysts had expected. Net income was $16.4 billion, down 12% year over year.

The revenue results come at a turbulent moment for Microsoft and the technology industry as a whole. Microsoft said last week it plans to lay off 10,000 employees as part of a broader cost-cutting measure. In explaining the cuts, CEO Satya Nadella pointed to the pandemic-induced shift in demand for digital services and fears of a looming recession.

Demand for personal computers and the Microsoft operating system that powers them boomed early in the pandemic, then retreated. Consulting firm Gartner said earlier this month that worldwide PC shipments in the fourth quarter of 2022 fell more than 28% year-over-year. This marked the largest quarterly shipment decline since Gartner began tracking the PC market in the mid-90s.

On Tuesday, Microsoft reported declining revenue from its Windows OEM operations and its Xbox content and services line. Microsoft also said the layoffs announced this month would result in $800 million in severance costs and “costs related to hardware portfolio changes and lease consolidation activities.”

However, the earnings report had some bright spots. In recent years, revenue from Microsoft’s core business of cloud computing has grown by 22% over the previous year. An Evercore analyst described the results as “a sigh of relief”.

Shares of Microsoft rose 4% in after-hours trading on Tuesday on the news.

“The next wave of computing is being born as Microsoft Cloud transforms the world’s most advanced AI models into a new computing platform,” CEO Satya Nadella said in a statement accompanying the results. We are committed to helping you do more with less and innovate for the future of the new AI era.”

Earlier this week, Microsoft confirmed that it was investing “billions of dollars” in OpenAI, the company behind ChatGPT, a viral AI-powered chatbot tool. Microsoft, an early investor in OpenAI, could see a strengthening partnership between the two companies elevate Microsoft to an AI leader and pave the way for the company to incorporate elements of ChatGPT into some of its signature applications, such as Outlook and Word.

In a memo to employees announcing job cuts, Nadella said the company would continue to invest in “strategic areas for the future” and pointed to advancements in AI as the “next major wave” of computing.

CNN wire
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