Microsoft announces strong cloud results, but outlook is disappointing

Microsoft falls below the bar with its revenue in the second quarter, while earnings are better than expected. CEO Satya Nadella pointed to the power of the Microsoft Cloud combined with the rapid development of artificial intelligence (AI). However, the outlook was disappointing and the aftermarket gains melted away.

Microsoft

missed Wall Street estimates for second-quarter revenue on Tuesday. A decline in the PC market put pressure on the Windows software business. Quarterly earnings fell 12 percent to $16.4 billion, but at $2.32 per share, the profit was higher than the $2.29 expected.

Revenue grew 2 percent to $52.7 billion in the quarter ended Dec. 31, compared with the average analyst estimate of $52.94 billion.

Microsoft initially rose 3 percent after the close, but enthusiasm cooled during the analyst call. The outlook for cloud revenue for the current quarter is below expectations. Revenue growth for the Azure cloud service will decline by 4 to 5 percentage points this quarter. In the second quarter, Azure still accounted for 38 percent higher revenue at constant exchange rates.

Microsoft sees total revenue between $50.5 billion and $51.5 billion for the current third quarter, analysts had expected $52.43 billion. According to the company, the PC market is expected to shrink again.

Cloud



Microsoft Cloud transforms the world’s most advanced AI models into a new computing platform.

Satya Nadella

CEO Microsoft

Revenue from the Azure platform brought in $21.5 billion during the second quarter, beating expectations. “The next great wave in computing is about to be born,” CEO Satya Nadella said in the press release. “Microsoft Cloud turns the world’s most advanced AI models into a new computing platform.”

We are committed to helping our customers use our platforms and tools to do more with less today and innovate for the future in the new era of artificial intelligence. On Monday, Microsoft announced another billion investment in OpenAI, the company behind the sensational chatbot ChatGPT. Nadella’s company has an exclusive agreement with OpenAI for cloud services. Microsoft launched the Azure OpenAI Service for developers, enabling them to build new AI applications through direct access to OpenAI models. This service is already used by more than 200 customers.



The next great wave in computing is about to be born.

Satya Nadella

CEO Microsoft

An example of the success of integrating AI technology can be found on GitHub, a platform used by more than 100 million developers. More than a million users have used GitHub Copilot, a service that generates computer code based on AI, according to Nadella.

Azure closed 2022 with a 30 percent market share in the cloud computing market. In 2018, it was only 20 percent, according to estimates from BofA Global Research. Market leader Amazon.com’s competing service, AWS, went from 71 percent to 55 percent in the same period.

Impact of declining PC sales

PC shipments fell nearly 29 percent between October and December, according to Gartner, the biggest drop in quarterly shipments since the consulting firm began tracking the market in the mid-1990s. This development had a clear impact on the sales of the More Personal Computing segment, which includes Windows, Xbox, devices and search revenue. It fell 19 percent to $14.2 billion. The gaming division Xbox saw revenue from content and services fall by 12 percent. Microsoft still aims to complete the purchase of gaming company Activision this financial year. The supervisory authorities are particularly critical of the agreement.

Much more was spent on computers during the pandemic now that spending is being optimized, CEO Nadella noted.

Microsoft had previously announced that it would cut 10,000 jobs, 5 percent of its workforce. Charges of $1.2 billion were incurred in the quarter to reduce headcount, review hardware inventory and reorganize leases.

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