Microsoft earnings hurt by slowing PC sales, stronger dollar

Microsoft missed estimates for quarterly revenue on Tuesday, hurt by a stronger dollar, slowing sales of PCs and lower advertiser spending.

The results amounted to a slight miss at a time when investors are bracing for disaster, with inflation roaring, consumers cutting spending and many corporations starting to cut expenses.

Shares of the Redmond, Wash.-based company were flat in after-hours trading. The stock has lost about 25% this year.

Still Microsoft had its best quarter for its cloud business with record bookings for its cloud service called Azure, said Brett Iversen, Microsoft’s general manager of investor relations.

Azure growth was 40%, missing the 43% analyst target compiled by Visible Alpha. It was up 46% if foreign exchange factors are eliminated. In its broader Intelligent Cloud division, revenue was up 20% to $20.9 billion, ahead of the average Wall Street target of $19.1 billion, according to Refinitiv.

Microsoft faces pressure from a stronger greenback as it gets about half of its revenue from outside the United States. That led the company to lower its fourth-quarter profit and revenue forecasts in June. 

The US dollar index .DXY rose over 2% in the quarter ended June and nearly 12% this year, compared to a 1% drop a year earlier for the same period.

Without the stronger dollar, the company’s 12% year-on-year revenue growth would have been 4 percentage points higher, Iversen told Reuters. Three main factors reduced fourth-quarter revenue by about $1 billion.

Foreign exchange negatively impacted revenue by nearly $600 million. A slowdown in the PC market hit Windows OEM revenue by over $300 million. And advertising spend slowdown hit LinkedIn and Search and news ad revenue by over $100 million.

“With Microsoft being the size that they are, it’s hard for them not to reflect the overall economy,” John Freeman, vice president of equity research at CFRA Research. “We’ve got inflation and that’s obviously going to dampen consumer demand.”

Softer consumer demand also hit gaming revenue, which fell 7% year-on-year due to a drop in Xbox hardware, content and services, the company said.

Microsoft reported revenue of $51.87 billion in the fourth quarter, compared with $46.15 billion a year earlier. Analysts on average had expected revenue of $52.44 billion, according to Refinitiv IBES data.

Net income rose to $16.74 billion, or $2.23 per share, during the quarter ended June 30, from $16.46 billion, or $2.17 per share, a year earlier.