But the company missed expectations and profits fell significantly.
Devindra Hardawar
·Senior Editor
Tue, January 24, 2023
Rami Amichay / reuters
Like many big tech companies, Microsoft is preparing for the worst after announcing plans to lay off 10,000 employees in the upcoming third quarter. It turns out that the company's second quarter was a mixed bag: It earned $52.7 billion in revenue, which was up 2 percent from last year, but a slight miss from the $52.9 billion analysts expected. Profits also fell by 12 percent to $16.4 billion, a trend that may continue throughout the year.
Despite the faltering PC market, Microsoft has been riding high on cloud revenues for years, and that seems to be continuing. its intelligent cloud business was up 18 percent from last year, reaching $21.5 billion. Microsoft's belt tightening didn't stop the company from potentially investing $10 billion more in ChatGPT creator OpenAI, yet another sign that AI is going to play a major role in its future projects. The company plans to add ChatGPT to its Azure OpenAI service soon, and it's reportedly planning to integrated that technology in Bing.
Microsoft's More Personal Computing division, which includes Windows, Xbox and PC hardware, fell by 19 percent year-over-year, hitting $14.2 billion. That's the direct result of the PC market downturn. The company says Windows revenue to manufacturers fell by 39 percent, while Xbox content and services was also down by 12 percent. Devices revenue also dropped by 39 percent — it turns out Surface devices weren't in huge demand over the holidays.
"The surprisingly strong performance in Microsoft’s key Azure cloud business was enough to ease worries surrounding a steeper deceleration path on cloud optimizations, sending the stock higher," said Jesse Cohen, senior analyst at Investing.com. "Tech investors are relieved to see that the slowdown across Microsoft’s key cloud business was not as bad as feared."
Microsoft earnings beat expectations, cloud growth continues to slow
Microsoft (MSFT) announced its Q2 earnings after the bell on Tuesday, barely missing analysts' expectations on revenue and beating on earnings per share.
Here are the most important numbers from the report compared to what analysts were expecting from the quarter, as compiled by Bloomberg.
Revenue: $52.7 billion vs. $52.9 billion expected
Adjusted EPS: $2.32 vs. $2.30 expected
Productivity and Business processes: $17 billion vs. $16.8 billion expected
Intelligent Cloud: $21.5 billion vs. $21.4 billion expected
More Personal Computing: $14.2 billion vs. $14.7 billion expected
Shares of Microsoft were up more than 4% immediately following the news.
Despite the beat on earnings per share, Microsoft's cloud business continued to slow in the quarter. The company reported its Intelligent Cloud segment grew 18% in the quarter, while its Azure services grew 31%. That's down from Q2 last year, during which Intelligent Cloud and Azure saw growth of 26% and 46%, respectively.
“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,” Microsoft CEO Satya Nadella said in a statement. “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.”
Microsoft's announcement follows news that the company is engaging in a multi-year, multi-billion dollar investment in OpenAI in an attempt to better tackle competitors including from Amazon (AMZN) to Google (GOOG, GOOGL).
The investment is expected to help Microsoft further differentiate its cloud offerings from competitors like Amazon and Google. The company is also said to be bringing the technology to its Bing search engine, a move that could threaten Google’s search dominance.
Just last week, however, Microsoft cut some 10,000 workers. The move comes as the company is dealing with flagging PC sales. Windows OEM revenue, which is the amount Microsoft makes on sales of its operating system to PC makers fell 39% year-over-year.
The company is also continuing in its effort to purchase video game giant Activision Blizzard for $69 billion. So far, the Federal Trade Commission, the U.K’.s Competition and Markets Authority, and the E.U.’s European Commission have either lodged complaints about ,or are outright working to scuttle, the deal.
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