The latest results are like a blast from the past—and not in a good way.
The software titan has come a long way from the days when it depended on its ubiquitous Windows operating system. But it is still a lucrative business—enough so that a slump in personal computer sales can weigh on Microsoft’s financial results. And a slump this is; IDC reported earlier this month that PC unit sales slid 28% year over year during the December quarter—the biggest drop tracked by the market research firm’s numbers going at least back to 2015.
Not surprisingly then, Microsoft said Tuesday in its fiscal second quarter results report that Windows revenue slid 27% year over year to about $4.9 billion for the same period. That is less than 10% of the company’s revenue now, but it is a profitable contributor given that much comes from PC makers simply paying Microsoft to bundle Windows onto their machines. Hence, operating profits in Microsoft’s More Personal Computing segment that includes the Windows business slid 48% year over year. That played a big part in the company’s total operating profit for the quarter coming about 3% shy of Wall Street’s forecasts, at $20.4 billion.
Investors have largely learned to look past Windows these days in favor of Microsoft’s far more important cloud business. But as Microsoft’s last report three months ago proved, even that isn’t immune to the slumping global economy. Azure, the cloud computing service that competes squarely with Amazon’s AWS, grew revenue by 31% year over year. That slightly exceeded Wall Street’s forecasts, but it was still a record-low pace for the business. Things also aren’t looking like they will get much better anytime soon. Chief Financial Officer Amy Hood noted that cloud growth moderated, “particularly in December,” and projected revenue growth of 14% to 15% year over year for the company’s Intelligent Cloud segment during the March quarter—a deceleration of 11 percentage points from the same period last year.
Investors were at least better-prepared for bad news this time. Microsoft’s share price slipped 1% in after-hours trading following the results and forecast compared with the 8% drop sparked by its previous quarterly report. As the first major tech player to post results for the December quarter, Microsoft also casts a large shadow. It has a highly diversified business that spans corporate and consumer software, cloud services, videogame systems and even online advertising. The company even noted that the recent spate of big tech layoffs will hurt its LinkedIn business, which is a major corporate recruiting tool in the tech sector. Those layoffs include 10,000 positions to be cut from Microsoft’s own payroll—another sign that even a cloud titan can’t keep floating above the economy.
Write to Dan Gallagher at email@example.com
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