The Microsoft forecast assumes that the gloomy technology environment will continue

Microsoft CEO Satya Nadella leaves the Elysee Palace after a meeting with French President Emmanuel Macron May 23, 2018 in Paris.

Aurelia Morissard | IP3 | Getty Images

Microsoft Executives told analysts on Tuesday to expect a continuation of the weak pace of business that emerged in December, which hurt the software maker’s second-quarter results.

“In our commercial business, we expect the business trends we saw in late December to continue in the third quarter,” Amy Hood, Microsoft’s chief financial officer, said on a conference call.

Specifically, the company saw less than expected growth in subscriptions to Microsoft 365 productivity software, identity and security services, and business-centric Windows products.

Growth in usage of the company’s Azure cloud computing service has also slowed, she said.

The company sells products like Xbox consoles and Surface PCs to consumers, but most of its revenue comes from commercial customers like businesses, schools, and governments. That’s where the effect will be. A metric called Microsoft Cloud — which includes Azure, Microsoft 365 commercial subscriptions, LinkedIn commercial services, and Dynamics 365 enterprise software — now accounts for 51% of total revenue.

Big companies are optimizing their spend on cloud services, a key growth area for Microsoft, said CEO Satya Nadella. That behavior continued through its fiscal first quarter, and in October Amazon also spoke about how it’s helped cloud customers optimize their costs.

Microsoft has made product changes to highlight spots where customers could lower their cloud bills, Nadella said.

Hood said Azure’s growth would continue to slow. For the full December quarter, revenue from Azure and other cloud services grew 42% on a currency-neutral basis. But in December, Hood said growth was in the mid-30% range in constant currencies, and she forecast a further 4-5 percentage point deceleration in the current quarter ending in March.

The slowdown, which began in December, should also impact Q3 results for Windows commercial products and cloud services, a category that includes enterprise Windows volume licensing, Hood said. Their guidance included flat revenue for commercial Windows products and cloud services, compared to a 3% decline in the fiscal second quarter.

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https://www.cnbc.com/2023/01/24/microsoft-forecast-suggests-gloomy-tech-environment-will-continue.html The Microsoft forecast assumes that the gloomy technology environment will continue

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