Update (1800ET): Microsoft shares are extending their losses during the earnings conference call as the tech titan gives its guidance for Q2:
The More Personal Computing sales outlook showed the biggest impact from the current business environment.
Microsoft is projecting sales in the range of $14.5 billion to $14.9 billion versus $16.9 billion analysts surveyed by FactSet had been forecasting.
The company said sales for its Productivity and Business Processes segment would likely come in around $16.6 billion to $16.9 billion, compared with $17.2 billion expected by Wall Street.
“In our consumer business, materially weaker PC demand from September will continue,” Chief Financial Officer Amy Hood said on the earnings call.
The Intelligent Cloud business segment is expected to see sales at constant currency of $21.25 billion to $21.55 billion, shy of the $21.8 billion according to the average of analysts surveyed by FactSet.
Microsoft said revenue growth in its closely watched Azure cloud-computing business will drop by five percentage points in the current period from the prior quarter.
Azure sales rose 42% in the fiscal first quarter, excluding the impact of foreign-currency exchange rates, meaning the forecast implies a gain of 37% for the second quarter (well below the 40.6% analysts expected)…
Finally, Hood estimated the company will pay $800 million in extra energy costs this fiscal year.
“A lot of it is in Europe,” she said.
“And it’s not just for the winter.”
Hood also suggested that more cost cuts could be coming to Microsoft, after the company confirmed layoffs of fewer than 1,000 employees earlier this month.
“While we continue to help our customers do more with less, we will do the same internally,” she said.
“And you should expect to see our operating-expense growth moderate materially through the year while we focus on growing productivity of the significant head-count investments we’ve made over the last year.”
MSFT is now down almost 8% from the close…
The combined effect of MSFT and GOOGL has erased all of the Nasdaq’s gains for the day…
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At first glance, earnings for the tech giant looked solid as Microsoft beat on the top- and bottom-lines:
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Revenue $50.12 billion (+11% YoY), better than the estimate of $49.56 billion
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EPS $2.35 (less than the $2.71 EPS for Q1 last year), but better that the estimate of $2.29
However, the top-line growth was the weakest since 2017…
The breakdown shows the company beating in all the segments (but cloud was barely a beat):
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Productivity and Business Processes revenue $16.47 billion, estimate $16.11 billion
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Intelligent Cloud revenue $20.33 billion, estimate $20.31 billion
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More Personal Computing revenue $13.33 billion, estimate $13.08 billion
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Commercial Cloud revenue $25.7 billion, estimate $25.66 billion
But while the CFO projected strength in cloud…
“This quarter Microsoft Cloud revenue was $25.7 billion, up 24% (up 31% in constant currency) year-over-year. We continue to see healthy demand across our commercial businesses including another quarter of solid bookings as we deliver compelling value for customers,” said Amy Hood, executive vice president and chief financial officer of Microsoft.
Some traders pointed to problems, potentially affecting cloud margins as the MSFT slideshow discussed rising energy prices are boosting the costs of delivering cloud…
Gross margin dollars grew 20% (up 26% CC) and gross margin percentage decreased slightly. Excluding the impact of the latest change in accounting estimate for useful lives, gross margin percentage decreased roughly 3 points driven by sales mix shift to Azure and other cloud services and lower margins in Azure and other cloud services, primarily due to higher energy costs.
MSFT shares tumbled on the print, erasing all of the day’s gains…
“In a world facing increasing headwinds, digital technology is the ultimate tailwind,” said Satya Nadella, chairman and chief executive officer of Microsoft.
“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.”
Tyler Durden
Tue, 10/25/2022 – 18:09
