Microsoft’s revenue beats expectations in the second quarter

Tech giant Microsoft attributed the lower-than-expected earnings to developments in China and Russia, including extended coronavirus-related lockdowns, and the recent war against Ukraine.

According to business results, Microsoft recorded $51.9 billion in revenue and $16.7 billion in profit, an increase of 12 percent and 2 percent, respectively, compared to the same period last year, but less than the expectations of analysts polled. “Refinitive”.

The company said in its earnings statement that the “prolonged production interruptions in China” had led to losses estimated at $300 million, adding that it had spent $126 million to “significantly reduce” its operations in Russia because of the war in the Ukraine. However, there were also more global issues, Microsoft’s work platform LinkedIn suffered from a drop in advertising spending, along with the company’s search and news business, which reduced revenue by more than $100 million.

Amid the broader downturn in the tech industry, Microsoft said it had undertaken a “strategic realignment” of its business that resulted in spending $113 million on layoffs (excluding Russia).

Challenging effects

Despite these results, there were some bright spots, led by Microsoft’s cloud business. The company’s cloud revenue for the quarter was about $25 billion, an increase of 28 percent over the same quarter last year.

In a recent research note, commenting on the company’s business results, Amy Hood, executive vice president and chief financial officer of Microsoft, said: “In a dynamic environment, we saw strong demand, captured share and ‘ a greater connection with customers to our cloud platform.”

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Meanwhile, Harris Anwar, chief analyst at Investing.com, said cloud growth reflects the continued strength of tech giant Microsoft.

“Today’s results largely reflect the impact of the challenging economic environment that is hurting almost every giant technology company,” he added. He noted that the cloud’s strong performance indicates that “businesses large and small continue to spend on their IT infrastructure, a trend Microsoft will continue to support even as the economy slides into recession.”

Lowest level of sales

According to business results, the company’s net income rose to $16.7 billion, or $2.23 per share, while analysts had expected Microsoft’s average sales to rise to $52.4 billion and earnings of $2.29 per share, according to a Bloomberg poll.

The rise in the U.S. dollar, which reduced the value of overseas sales, hurt revenue and profits during the fourth quarter, prompting Microsoft to cut its forecast in early June, and the company slowed the pace of hiring in sectors such as “Azure” and “Office” responsible About the development of computer programs related to productivity.

The company’s overall sales increase was the lowest since September 2020 as Azure growth rates continued to decline, sending the broader PC market on an annual decline.

In a recent research note, Derek Wood, an analyst at Cowen Bank, said demand had slowed further in recent weeks as Microsoft customers put off purchases in anticipation of a possible global recession.

“Things start to slow down after Memorial Day, and we start to see more cautious buying behavior and longer sales cycles,” Wood added, noting that these adverse effects could affect the company’s outlook more than last quarter’s results, and that currency exchange rates have less become favorable since it was devalued. Microsoft” forecast last month.

Strong dollar effect

Meanwhile, Microsoft cut its sales and profit forecasts for the June quarter, blaming the strong US dollar for revenue of $460 million. The company said that the consequences of what is happening in the currency market were more serious than expected.

The Russian war in Ukraine prompted the company to reduce its activities in Russia, which led to it incurring $126 million in accounting fees.

Commercial bookings, a measure of future sales to business customers, were “significantly” better than the company expected, rising 25 percent, an indication that business demand for Microsoft software remained strong this quarter. “We do most of the commercial booking work in June, and it was a record quarter for us, much better than we had planned,” the company said.

The software maker also paid $113 million in compensation to terminate the employment of its employees during the recent period. Microsoft said earlier this month it had cut its 180,000-person workforce by less than 1 percent, affecting departments such as consulting and customer relationship management solutions, but said it planned to end the current fiscal year with an increase in headcount .

The company also eliminated many open positions and slowed hiring in other divisions, including those developed for Azure, Windows, Office and security software.

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