Microsoft on Tuesday reported lower-than-expected revenue and a double-digit percentage drop in profit in the final three months of last year amid broader economic uncertainty and lower demand for personal computers and software.
The tech giant reported revenue of $52.7 billion for the quarter, a modest 2% increase from a year earlier but slightly below analysts’ expectations. It reported net income of $16.4 billion, down 12% from the previous year.
The earnings report comes at a time of turmoil for Microsoft and the broader tech industry. Microsoft said last week that it plans to lay off 10,000 employees as part of broader cost-cutting measures. In explaining the layoffs, CEO Satya Nadella pointed to changing demand for digital services amid the pandemic and fears of a looming recession.
After a boom early in the pandemic, demand for PCs, and the Microsoft operating system that powers them, has retreated. Consulting firm Gartner said earlier this month that worldwide PC shipments fell by more than 28% in the fourth quarter of 2022 compared with the same period last year. This marks the largest quarterly decline in shipments since Gartner began tracking the PC market in the mid-90s.
On Tuesday, Microsoft reported a decline in revenue from its Windows OEM business and its Xbox content and services line. Microsoft also said the layoffs announced this month would result in $800 million in severance payments, as well as charges for “changes in our hardware portfolio and costs related to lease consolidation activities.”
But the earnings report also had some bright spots. The cloud computing unit, a focus area for Microsoft in recent years, saw its revenue grow 22% from the previous year. An Evercore analyst described the results as a “breath of relief.”
Affected by the news, Microsoft shares rose 4% in after-hours trading on Tuesday.
“As the Microsoft Cloud transforms the world’s most advanced artificial intelligence models into a new computing platform, the next major wave of computing is being born,” CEO Satya Nadella said in a statement accompanying the results express. “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 artificial intelligence.”
Earlier this week, Microsoft confirmed that it was investing “multi-billion dollars” in OpenAI, the company behind the viral AI-powered chatbot tool ChatGPT. A deepening partnership between the two companies — Microsoft was an early investor in OpenAI — could help Microsoft quickly emerge as an AI leader and give the company the ability to incorporate elements of ChatGPT into some of its signature apps like Outlook and Word) paved the way.
In a memo to employees announcing the layoffs, Nadella said the company will continue to invest in “strategic areas of our future,” noting advances in artificial intelligence are the “next major wave” of computing.