Microsoft on Tuesday reported a 14% drop in earnings for the July-September quarter from the same period last year, reflecting a weak market for personal computers impacting its Windows business.
The company posted quarterly net income of $ 17.6 billion, or $ 2.35 per share, which still slightly exceeded Wall Street’s expectations despite last year’s results being lower.
The Redmond, Washington-based software maker posted revenue of $ 50.1 billion in the quarter, up 11% from last year, even exceeding expectations.
Analysts had expected Microsoft to earn $ 2.31 per share on revenue of $ 49.7 billion for the quarter.
Microsoft’s personal computer business, centered around its Windows software, was widely expected to take a hit given economic uncertainties such as inflation. In addition, many consumers bought new devices during the pandemic, helping to reduce demand.
The company earns licensing revenue from PC manufacturers who install their Windows operating system on their products. Revenue from those licenses fell 15 percent in the quarter, Microsoft said.
Worldwide personal computer shipments fell nearly 20% in the quarter compared to the same period last year, according to market research firm Gartner, which said it was the strongest decline since it began tracking the PC market in the mid-90s. A disappointing back-to-school sales season for new computers also contributed to a fourth consecutive quarter of year-over-year decline, Gartner said.
Microsoft shares fell more than 6% in after-hour trading on Tuesday. Amy Hood, Microsoft’s Chief Financial Officer, said in a conference call with investors that some of the negative factors that impacted the last quarter could extend into the near future. Alluding to recent layoffs and the last year of new hires, she said net headcount growth “will be minimal” for the current quarter.
Microsoft offset some of the losses related to Windows thanks to the strength of its cloud computing services provided to large corporations and other institutions.
Revenue in that segment grew 20% over the same period last year to $ 20.3 billion, making it the main source of Microsoft’s sales and growth during the period. But the growth of the company’s flagship Azure cloud computing platform has been less than analysts predicted, in part due to what Hood described as a steady rise in the cost of the energy needed to run powerful data centers.
The second largest business segment, consisting of productivity-related software such as the Office work suite, grew 9% to $ 16.5 billion in revenue.