Microsoft’s cloud business keeps profits flowing in tougher times

Jan 24 (Reuters) – Microsoft Corp (MSFT.O) reported results on Tuesday but saw some gains in the face of a weak economy fueled by cloud businesses that met their Wall Street targets for the end of 2022. Showed strength but may fall short of expectations in the current quarter.

A relatively stable outlook will help allay concerns that the lucrative cloud segments of big tech companies could take a big hit as customers look to cut spending, reported Tuesday. Fiscal Q2 cloud revenue compensated for weakness in the PC unit.

TECHnalysis Research Chief Analyst Bob O’Donnell said:

Microsoft joined other big tech companies looking to layoffs to weather tough times, announcing more than 10,000 job cuts last week. Second quarter earnings beat Wall Street expectations.

According to Refinitiv, third-quarter revenues for so-called intelligent cloud businesses are expected to be between $21.7 billion and $22 billion, just below the average analyst forecast of $22.14 billion. Second quarter revenue for this segment was $21.5 billion, slightly above expectations.

Cloud business is back in the spotlight following the viral success of ChatGPT, a chatbot that uses artificial intelligence to answer common questions in plain language. The bot was created by his OpenAI, a startup in which Microsoft has invested heavily and needs powerful cloud computing services.

Brett Iversen, Head of Investor Relations at Microsoft, said of OpenAI: In the future, revenue from OpenAI-related business will be reflected in revenue from Microsoft’s cloud service Azure.

On the earnings call, CEO Satya Nadella said it’s too early to separate AI contributions from Azure cloud workloads.

Azure cloud product revenue increased 31% in the second quarter, in line with estimates compiled by Visible Alpha. It is steadily gaining market share from Amazon Web Services (AWS), which is owned by (AMZN.O), the leader.

BofA Global Research estimates that Azure will end 2022 with a 30% share of the cloud computing market, up from 20% in 2018. AWS dropped from 71% to 55% over the same period.

Reuters Graphics

According to Refinitiv IBES, Microsoft’s revenue rose 2% to $52.7 billion in the three months ended Dec. 31, compared to the average analyst estimate of $52.94 billion. Net earnings fell 12% to $16.4 billion, according to Refinitiv calculations, but adjusted earnings per share were $2.32, beating Wall Street’s consensus estimate of $2.29.

Revenue in Microsoft’s More Personal Computing segment, which includes Windows, Devices and Search revenue, fell 19% to $14.2 billion as the PC market continued to shrink. The company expects revenue to decline from $11.9 billion to $12.3 billion in the third quarter of the current fiscal year.

Reporting by Yuvraj Malik, Bangalore and Jane Lanhee Lee, Oakland, CA. Edited by Sriraj Kalluvila, Peter Henderson, Matthew Lewis, Leslie Adler

Our standards: Thomson Reuters Trust Principles.

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