Microsoft warns of cloud slowdown

On Tuesday, Microsoft warned of a marked slowdown in its cloud business as major customers halted their spending amid a slowing economy, sending shares of the firm fell 7% in after-market trading.

The cautious comments, made during a call with Wall Street analysts, dampened hopes that continued steady demand for cloud services will offset the slump in the PC market. and help the world’s largest software company withstand greater pressure in the IT market.

Microsoft warns that revenue growth from Azure, cloud computing platforms that have become one of the main engines of business activity, will slow by 5 percentage points this quarter, ignoring the effect of currency movements. At 42 percent, growth in the quarter to the end of September was one point below analysts’ expectations and four points lower than three months earlier.

CEO Satya Nadella blames the cloud slowdown on customers’ efforts to “optimize” their spending to save money when the economic outlook darkens. Microsoft also said higher energy costs from operating massive cloud data centers have eaten into its profit margins and will add $800 million to its costs this year.

With revenue from software sales to PC makers down more than 30% this quarter, Microsoft forecasts revenue between $52.35 billion and $53.36 billion, $3.2 billion less than expected. Wall Street newspaper at the midpoint of the range.

The upbeat analyst’s call comes after Microsoft previously reported that it had largely weathered the economic slowdown in the three months to the end of September. Revenue rose 11% to $50.1 billion, slightly above Wall Street expectations, while earnings per share of $2.35 were 4 cents higher than expected.

The figures reflect a sharp decline in sales of Microsoft’s highly profitable, traditional PC software, denting its larger profit margins.

Software sales to PC makers fell 15%, leaving overall revenue from Microsoft’s more Personal Computer division at $14.3 billion, up 3% in constant currency. According to Gartner, PC shipments fell 19.5% in the third quarter, the biggest drop since the research firm began tracking the PC market in the mid-1990s.

While Microsoft was able to make up for lost PC software sales with a 31% increase in revenue from its commercial cloud operations, the lower margins of the cloud business impacted margins. profit. Without changing its accounting policy to extend the useful life of data center equipment and reduce depreciation costs, Microsoft said its gross profit margin would fall 3 percentage points during the quarter.

Revenue from the Smart Cloud division, which includes Azure, grew 26% to $20.3 billion in the latest quarter, after excluding the effects of currency movements. Revenue at Business Process and Productivity, which includes Office, increased 15%, to $16.5 billion.

Microsoft said that the jump in the dollar reduced revenue by $2.3 billion. The latest results were driven by an increase in prices earlier this year for the Office 365 productivity suite, as well as the completion of the acquisition of Nuance, which had nearly $350 million in sales during the same period last year. last.


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