Microsoft earnings hit by personal computing slowdown

By Catherine Thorbecke, CNN Business

Microsoft posted a double-digit profit decline in the three-month period ending in September as the company confronted a slowdown in the personal computing industry and a broader economic downturn.

The tech giant on Tuesday reported net income of $17.6 billion for the quarter, a decrease of 14% from the year prior. Microsoft’s revenue, meanwhile, grew a modest 11% to $50.1 billion. Both results were better than analysts had expected.

Microsoft’s Azure cloud services unit saw revenue increase by 35% from the prior year, but the growth was slower than some analysts had hoped for a division that has been one of the company’s biggest bright spots in recent years.

Other parts of Microsoft’s business declined. Microsoft said revenue from its Windows OEM operations fell 15% from the year prior, which comes as demand for personal computers has fallen sharply on the heels of a pandemic-fueled boom. Consulting firm Gartner reported earlier this month that worldwide PC shipments declined 19.5% in the third quarter of 2022, compared to the same period last year. This marks the steepest market decline since Gartner began tracking the PC market in the mid-1990s.

Microsoft also said revenue from Xbox content and services declined by 3%. The company reportedly recently laid off employees in its Xbox division, among other parts of the company, as it — like many other tech companies right now — looks to cut costs.

Shares of Microsoft fell 2% in after-hours trading Tuesday following the earnings report.

Microsoft’s stock has fallen more than 25% since the beginning of the year, amid a broader market downturn as rising inflation, geopolitical uncertainty from the war in Ukraine and more macroeconomic headwinds continue to wreak havoc on the tech industry.

“In this environment, we’re focused on helping our customers do more with less, while investing in secular growth areas and managing our cost structure in a disciplined way,” Satya Nadella, CEO of Microsoft, said in a statement Tuesday announcing the quarterly earnings.

Haris Anwar, senior analyst at Investing.com, called Microsoft’s earnings report a “mixed bag” in a commentary after the results were released on Tuesday.

“It shows that Microsoft is weathering the economic storm better than other technology players and its diversified business model is playing a big role in doing so,” Anwar said. But he added that the slowing cloud computing growth was cause for concern.

“If this growth deceleration continues, it could harm an investment case in the company’s stock which is considered a safe-haven amid the market turmoil, with these concerns reflected in the company’s shares being down in extended trading,” Anwar said.

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