PC demand declines and strong dollar impact... MS records lowest sales growth in 2 years

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Jeong Hyunjin] Microsoft (MS) recorded its slowest growth in two years in the second quarter (April to June) of this year due to decreased PC demand and the impact of a strong dollar.

According to Bloomberg and other sources on the 26th (local time), MS announced that its revenue for the fourth quarter of fiscal year 2022 (April to June) was $51.9 billion (approximately 68 trillion KRW), a 12% increase compared to the same period last year. Net income rose 2% to $16.7 billion, with earnings per share of $2.23. These figures fell short of market expectations of $52.4 billion in revenue and $2.29 earnings per share. CNBC reported that MS's revenue growth was the lowest since 2020, and this was the first time since 2016 that earnings per share missed market expectations.

The reason MS's performance fell short of expectations was due to reduced demand for cloud services and PC products. Revenue growth in the cloud computing sector, represented by Azure, slowed to 40% compared to 46% in the previous quarter, and personal PC sales revenue increased by only 2% year-over-year to $14.4 billion. Derek Wood, an analyst at investment bank Cowen, analyzed that consumers are postponing purchases due to recession concerns. A $100 million decrease in revenue related to search and news advertising and social media subsidiary LinkedIn was caused by reduced advertising spending, and Windows license sales also declined by 2% during this quarter.

Additionally, the strong dollar, which reached its highest level in 20 years, also impacted the results. The dollar index has risen 10% this year and recently surged, affecting overseas revenue. In this earnings announcement, MS emphasized the strong dollar situation by also reporting revenue and net income based on constant exchange rates, unlike before. According to this, the revenue and net income growth rates were 16% and 7% respectively on a constant currency basis, significantly exceeding the official figures of 12% and 2%. MS stated that the revenue loss due to exchange rates was approximately $595 million, and operating income per share was reduced by about $0.04.

MS revealed that operating expenses reached a record high of $126 million due to the withdrawal from its Russian business in this earnings report. In addition to the Russian business, MS added that it spent $113 million on severance costs due to layoffs related to the recent economic downturn. MS has recently announced plans to lay off some employees in certain divisions and to be cautious about hiring new staff for the time being.

Following the earnings announcement after market close, MS's stock price fell about 1.5%. MS's stock price has dropped 25% since the beginning of this year.

This content was produced with the assistance of AI translation services.