Microsoft on Tuesday posted weaker-than-expected revenue and a double-percent decline in profit for the final three months of last year amid broader economic uncertainty and reduced demand for personal computers and software.
The tech giant reported revenue of $52.7 billion for the quarter, a slight 2% increase from a year earlier but slightly less than analysts had 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 it plans to lay off 10,000 employees as part of wider cost-cutting measures. In his explanation of the cuts, CEO Satya Nadella pointed to the change in demand for digital services in the many years leading up to the pandemic as well as the fear of recession.
Demand for personal computers, and the Microsoft operating systems that power them, has pulled back after a boom early in the pandemic. Consulting firm Gartner said earlier this month that worldwide PC shipments fell by more than 28% in the fourth quarter of 2022 compared to the same period a year earlier. This was the biggest quarterly shipment decline since Gartner began tracking the PC market in the mid-90s.
On Tuesday, Microsoft reported revenue declines from its Windows OEM operations and its Xbox content and services lines. Microsoft also said it would incur $800 million in severance expenses from the layoffs announced this month, as well as charges from “changes to our hardware portfolio, and costs related to lease consolidation activities.”
But there were some bright spots in the earnings report. Revenue from its cloud computing division, a key area of focus for Microsoft in recent years, increased 22% from the previous year. An analyst at Evercore described the results as a “sigh of relief.”
Microsoft shares rose 4% in after-hours trading Tuesday on the news.
“The next big wave of computing is being created, 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 “multibillion dollar” investment in OpenAI, the company behind the viral AI-powered chatbot tool ChatGPT. The increased partnership between the two companies – Microsoft was an early investor in OpenAI – could help position Microsoft as an AI leader and pave the way for the company to incorporate aspects of ChatGPT into some of its flagship applications, such as Outlook and Word.
In his memo to staff announcing the job cuts, Nadella said the company will continue to invest in “strategic areas for our future” and cited advances in AI as “the next big wave” of computing.