Microsoft posted its slow-going quarterly revenue growth in five years and a 14% drop in profit on Tuesday as the tough macroeconomic conditions hit Windows PC sales and slowed cloud growth, which had been the leading factor for the earnings for last so many years.
According to Refinitiv IBES data, Microsoft reported revenue of US$ 50.12 billion for its fiscal first quarter, up 11% year-on-year, and marginally above analysts' expectations of US$ 49.61 billion. "The Street is fearing a softer guide from Satya Nadella, the executive chairman and CEO of Microsoft and that is contributing to the weakness after hours," mentions Daniel Ives, an analyst at Wedbush Securities, referring to Satya Nadella's earnings call. "The PC market was worse than we expected in Q1," Brett Iversen, head of the company's investor relations, revealed. "We continued to see that deteriorate throughout the quarter, which impacted our windows OEM business."
Windows OEM business, which adds the operating software Microsoft sells to PC makers, fell 15% year-on-year. Iversen mentioned that part of the business did not have a wide impact from foreign-exchange headwinds and the effect was largely on Microsoft's Windows PC market driven. However, a mixed portfolio of products including Outlook and Teams has up taken Microsoft essential to businesses by accepting flexible work models, helping it retain and attract customers at a time when a broader economic slowdown has sapped corporate spending.
Microsoft shares dropped by more than 6 percent in after-hours trading Tuesday. Microsoft Chief Financial Officer Amy Hood revealed on a conference call with investors that some of the unfavorable factors affecting the last quarter could extend into the near future. Mentioning recent layoffs and the past year of new hires, she stated that net headcount growth "will be minimal" heading into the current quarter. Microsoft made up for some of the Windows-related losses through the strength of its cloud-computing services supplied to big businesses and other institutions.
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