Microsoft Earnings Fall Short as PC Sales Slide

Microsoft said on Tuesday (Wednesday in Manila) its earnings in the second quarter fell short of expectations as personal computer (PC) sales suffered from production holdups in China and sagging demand.

The United States technology giant reported a $16.7-billion profit on revenue of $51.9 billion, topping the same quarter a year earlier but missing market forecasts.

The earnings stumble was due mostly to foreign exchange rates and shutdowns of PC factories in China, Wedbush analyst Dan Ives said in a note to investors.

Microsoft said the strong US dollar made its offerings more costly in foreign markets, hurting sales.

'The most important core business — cloud and commercial bookings — was relatively rock solid despite fears,' Ives said. 'The core DNA of the Microsoft growth story is cloud and core Azure growth, which was healthy this quarter and appears to have momentum into 2023 despite economic headwinds.'

'In a dynamic environment, we saw strong demand, took share and increased customer commitment to our cloud platform,' Chief Financial Officer Amy Hood said.

Shutdowns at computer production facilities in China in May and a deteriorating market for PCs cost Microsoft some $300 million in revenue it would have made from Windows operating systems bought to power the machines, the earnings report indicated.

The PC market had been in steady decline before the coronavirus pandemic as people turned to smartphones or tablets.

A massive shift to shopping, working, socializing and playing from home reignited demand for desktop computing power, but it remains to be seen whether that appetite would remain post-pandemic.

Advertising revenue at Microsoft's online news, search and career social network LinkedIn suffered due to companies cutting marketing budgets due to broad economic woes, the company said.

The tech veteran based in the American state of Washington also logged $126 million in operating expenses related to scaling back its operations in Russia because of that country's invasion of Ukraine.

Microsoft saw consumers spend less on Xbox video game content in the quarter than a year earlier, in a possible sign that many are out playing in the real world more as pandemic restrictions ease. AFP

However, Microsoft's cloud, business and productivity offerings continued to thrive.

'We see real opportunity to help every customer in every industry use digital technology to overcome today's challenges and emerge stronger,' Chief Executive Officer Satya Nadella said.

July 27, 2022