Facing a strong U.S. dollar and weakening personal computer sales, Microsoft on Tuesday reported its slowest growth in five years.
The technology giant posted an 11 percent increase in revenue to $50.1 billion for the three months that ended in September, as profit fell 14 percent to $17.6 billion from a year earlier. The last time revenue growth was this slow was the quarter that ended in March 2017; Microsoft’s revenue has since typically grown 12 percent to 22 percent each quarter.
The results were in line with what Microsoft told investors to expect and included a less favorable foreign currency environment. The war in Ukraine and the economic turmoil in Britain have strengthened the U.S. dollar, depressing revenue by $2.3 billion. Removing the currency fluctuations, Microsoft’s business grew 16 percent.
Microsoft suggested that the difficult conditions might continue when it gave a financial forecast for the current quarter that fell short of Wall Street’s expectations. The company’s shares dropped more than 6 percent in after-hours trading.
In the most recent quarter, softness in the global market for new computers, which affects Microsoft’s lucrative Windows business, offset the strength of the company’s cloud computing services and its suite of productivity software like Word, Excel and security offerings. The company said it continued to see healthy demand in its commercial business.
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Satya Nadella, Microsoft’s chief executive, told investors that, in uncertain times, cloud computing helped customers manage the risks of supply chain shortages and energy costs. “We look at this and say, ‘This is a period when cloud is going to gain share,’” he said.
Sales of the Windows operating system installed on new computers declined 15 percent, as employers and consumers who had raced to upgrade laptops and other devices during the pandemic’s work-from-home boom returned to more regular buying patterns. Amy Hood, Microsoft’s finance chief, said the slowdown in consumer PC sales that started in September would continue through June.
Revenue from Azure, the company’s flagship cloud computing product, increased 35 percent, or 42 percent without currency fluctuations, slightly below what the company had told investors to expect. Azure’s revenue is largely driven by consumption, meaning that it rises as customers actually use the cloud offerings more. The results, and recent deal announcements, show that large corporate customers are continuing to move work to the cloud, though Ms. Hood said investors should expect Azure’s growth to slow another five percentage points in the current quarter.
Microsoft has succeeded in getting businesses to buy and upgrade subscriptions for suites of security services and products like Excel and Teams. The company raised the list prices of such product suites earlier this year and has pushed its premium offerings. In doing so, Microsoft has increased its revenue per user, which is “an enduring growth driver,” analysts at Bank of America recently wrote.
Overall revenue for Microsoft’s commercial Office 365 subscriptions rose 11 percent.
“A difficult economic environment is going to slow growth, no question, but it also gives them an opportunity to sell a really high value bundle of products,” said Brad Reback, an analyst at the investment bank Stifel.
The company is also seeing the pandemic-fueled boom in gaming slowly deflate, as sales from Xbox games fell 3 percent.
Ms. Hood said Microsoft was still investing in key areas, though it was keeping an eye on expenses and expected not to grow its employee head count in the quarter.