Even the world’s largest tech companies are feeling the impact of soaring inflation rates on the global economy.
In a call with financial analysts last October 25th, Microsoft expressed concerns regarding a slowdown affecting its cloud computing arm as major customers have either decreased spending on cloud infrastructure or have halted related transactions indefinitely. This resulted in a 7% drop in the company’s stock value during after-market trading.
The low profitability of Microsoft’s cloud computing business has affected its profit margin. The company’s Intelligent Cloud division which includes Azure showed an increase of 26% in its quarterly revenue, closing at $20.3 billion. Meanwhile, revenue for the Productivity and Business Processes division closed at $16,5 billion, marking an increase of around 15%.
A Time to Save Up
According to Microsoft CEO Satya Nadella, a dismal outlook regarding the global economy has caused customers to save their money as opposed to spending on cloud solutions at the moment.
Nadella added that rising power costs have also had their role to play in the slowdown, as operational costs for the Microsoft cloud data center have cut into the company’s profit margin. At current rates, Microsoft expects to pay an additional $800 million to its operational costs for this year.
Likewise, the rampant dollar has lost Microsoft nearly $2.3 billion in revenues. Fortunately, its Q3 financials were in better shape thanks to a recent price increase imposed on the Office 365 productivity suite, along with its acquisition of medical cloud and artificial intelligence solutions developer Nuance earlier this year.
Slowing Down in September
At the end of September, Microsoft reported that its overall performance for Q3-2022 was marked by an economic slowdown even though its revenue bucked Wall Street expectations.
Microsoft’s revenue at the end of the quarter was up by 11%, closing the period at $50.1 billion. Earnings per share were up by 4 cents, settling at $2.35 each.
However, the aforementioned figures reflect a decline in sales of the company’s PC software. Total software sales to PC makers who typically bundle the Windows OS and Office suite with their products were down by around 15%. Likewise, PC shipments were also down by 19.5% in Q3 – the biggest drop recorded since the personal computing boom of the mid-’90s.
The decline in software sales brought total revenue for More, Microsoft’s personal computing arm, to $14.3 billion.