Microsoft on Tuesday posted weaker-than-expected revenue and a double-digit percentage drop in profit for the final three months of last year amid broader economic uncertainty and reduced demand for PCs personal and software.
The tech giant reported revenue of $52.7 billion for the quarter, a modest 2% increase from a year earlier but slightly less than analysts expected. It reported net income of $16.4 billion, down 12% from the previous year.
The earnings results come at a turbulent time for Microsoft and the technology industry as a whole. Microsoft said last week that it plans to lay off 10,000 employees as part of broader cost-cutting measures. In explaining the cuts, CEO Satya Nadella pointed to changing demand for digital services years after the pandemic, as well as fears of a recession.
Demand for personal computers, and the Microsoft operating systems that power them, has shrunk after experiencing a boom early in the pandemic. Consulting company Gartner said earlier this month that worldwide PC shipments fell more than 28% in the fourth quarter of 2022 compared to the same period a year earlier. That marked the biggest drop in quarterly shipments since Gartner began tracking the PC market in the mid-1990s.
On Tuesday, Microsoft reported declines in revenue from its Windows OEM operations and its Xbox content and services lines. Microsoft also said it would incur $800 million in severance costs for the layoffs announced this month, as well as charges for “changes to our hardware portfolio and costs related to lease consolidation activities.”
But the earnings report had some bright spots. Revenue from its cloud computing division, a key area of focus for Microsoft in recent years, rose 22% from a year earlier. An Evercore analyst described the results as “a sigh of relief.”
Microsoft shares rose 4% in after-hours trading Tuesday on the news.
“The next major wave of computing is being born as the Microsoft Cloud turns 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 our customers use our platforms and tools to do more with less today and innovate for the future in the new era of AI.”
Earlier this week, Microsoft confirmed that it is making a “multi-billion dollar” investment in OpenAI, the company behind the viral AI-powered chatbot tool ChatGPT. A deepening partnership between the two companies (Microsoft was an early investor in OpenAI) could help catapult Microsoft as a leader in AI and pave the way for the company to incorporate elements of ChatGPT into some of its apps distinctive, such as Outlook and Word.
In his memo to employees announcing the job cuts, Nadella said the company will continue to invest in “strategic areas for our future” and pointed to advances in AI as “the next big wave” in computing.
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