SEATTLE — The uncertainty and challenges of the global economy have hit Microsoft, which on Tuesday reported quarterly earnings which was below Wall Street’s expectations and his own expectations.
The tech giant said it had $51.9 billion in sales in the quarter ended June 30, up 12 percent from a year earlier. Earnings rose 2 percent to $16.7 billion.
The results fell short of even Microsoft’s low expectations. In early June, the company gone down your guide to the quarter to account for the ever-strengthening US dollar.
“Obviously, we’re incredibly bullish on just about everything else we have,” Chris Capossela, the company’s chief marketing officer, said after the revised guideline was published. “That’s something we can’t control.”
Since then, conditions appear to have deteriorated further. Currency challenges brought on by the war in Ukraine and broader economic uncertainty cost Microsoft $595 million in the quarter as it converted sales in Europe, Japan and elsewhere back to US dollars. And China’s slowdown in PC production and falling consumer demand have led to a more than $300 million drop in sales of its Windows operating system that comes pre-installed on new PCs.
A slowdown in ad spending across LinkedIn and Microsoft search products caused a more than $100 million decline in revenue.
If it weren’t for the currency woes, Microsoft’s flagship cloud computing platform, Azure, would have grown 46 percent. Instead, it grew 40 percent, less than investors expected. Without the strengthening dollar, the company’s two main business lines, which it calls Productivity and Business Processes and Intelligent Cloud, would have known the initial guidance it provided to investors in April.
“Business demand overall felt pretty healthy,” Brett Iversen, Microsoft’s head of investor relations, said in an interview Tuesday. “The long-term thesis of people who want to move to the cloud to digitize their business, to be able to do more or to be able to save money, all of that still feels intact.”
He said that was reflected in strong long-term booking commitments, including a record number of Azure deals worth more than $1 billion.
Overall revenue from Microsoft’s commercial cloud computing offerings, which also include Office 365 subscriptions, rose 28 percent to $25 billion.
“We see a real opportunity to help all customers across all industries use digital technology to overcome today’s challenges and emerge stronger,” Satya Nadella, the company’s chief executive officer, said in a statement.
Microsoft’s personal computing business grew 2 percent to $14.4 billion, dragged down by a 2 percent drop in sales of its Windows operating system that comes pre-installed on personal computers. Investors were prepared to see some weakness because PC shipments fall from weakened demand and supply chain issues caused by coronavirus lockdowns in China.
Xbox content and services revenue fell 6 percent as consumers spent less time playing video games.
With unemployment near 50-year lows, LinkedIn, the professional social network that Microsoft bought in 2016, grew 26 percent, down from 34 percent growth the previous quarter.
The company said it had $126 million in expenses related to downsizing its operations in Russia and another $113 million in costs for paying severance payments to employees it laid off.
Mr. Iversen said the layoffs were for “a small number of functions” and that the company hoped to expand its workforce in the new fiscal year, which began on July 1.