Microsoft Corp posted its weakest quarterly revenue increase in five years on Tuesday, as adverse macroeconomic conditions weighed on PC sales and impeded cloud expansion, which had previously helped earnings.

In addition, the company anticipated second-quarter sales below Wall Street projections across all business units, highlighting fears that macroeconomic headwinds are impacting both the cloud and PC operations. Microsoft indicated during an earnings call that revenue for the fiscal second quarter is likely to range between $52.35 billion and $53.35 billion. This forecasts a 2% increase in the range’s midpoint.

According to Refinitiv IBES data, Microsoft expects its Intelligent Cloud business to generate revenues of $21.25 billion to $21.55 billion in the second quarter, slightly less than the $22.01 billion predicted by analysts. According to Refinitiv IBES data, the company’s sales for the fiscal first quarter were $50.12 billion, up 11% year on year and slightly higher than analysts’ expectations of $49.61 billion.


“The Street is concerned about Nadella’s weaker outlook, which is contributing to the after-hours drop,” said Daniel Ives, an analyst at Wedbush Securities, referring to CEO Satya Nadella’s earnings call.

“The PC market was weaker than we expected in Q1,” said Microsoft’s investor relations chief Brett Iversen. “That deteriorated further throughout the quarter, impacting our windows OEM business”. Shares of the Redmond, Washington-based company fell 2% after the bell.

The Windows OEM business, which includes the operating software that Microsoft provides to PC manufacturers, decreased by 15% year on year. According to Iversen, a portion of the business was untouched by currency fluctuations, with the impact being mostly driven by the PC industry.

Nonetheless, Microsoft’s large product portfolio, which includes Outlook and Teams, has made it critical for corporations to adopt flexible work techniques, allowing it to retain and acquire customers at a time when a broader economic downturn has depleted corporate expenditure.

The Azure cloud-computing unit benefited from enterprises trying to automate their processes as well, securing big deals as organizations seek to reduce costs through technology. Azure rose 35% in the three months ending September 30 but fell short of Visible Alpha’s analyst forecast of 36.5 percent due to a stronger dollar. When foreign exchange factors were taken into account, Azure increased by 42 percent.

According to Refinitiv, Microsoft’s larger Intelligent Cloud segment reported a 20% increase in revenue to $20.33 billion, nearly matching predictions of $20.37 billion.

In the earnings report, Chief Financial Officer Amy Hood stated, “We continue to see good demand across our commercial businesses, including another quarter of solid bookings”.  Net income declined to $17.56 billion, or $2.35 per share, in the fiscal third quarter that ended September 30, from $20.51 billion, or $2.71 per share, the previous year.

Microsoft Firm is an American global technology corporation based in Redmond, Washington that manufactures computer software, consumer electronics, personal computers, and related services. Among its best-known software products are the Windows operating system, the Microsoft Office suite, and the Internet Explorer and Edge web browsers.

Its main hardware offerings are Xbox video gaming consoles and the Microsoft Surface range of touchscreen personal computers. Microsoft was the world’s top software company by revenue in 2019, and it ranked 21st in the 2020 Fortune 500 list of the largest US companies by total revenue. It is one of the “Big Five” American information technology businesses, along with Alphabet, Amazon, Apple, and Meta.

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