Microsoft has enjoyed over half a decade of consistent massive growth that saw the company elevate from being a has-been into the top three most valuable in the world. However, that growth is grinding to a halt over the last year as the global economic situation starts to affect the company. For its Fiscal FY23 Q2 earnings, Microsoft announced a 2% revenue increase ($52.7 billion) but a 12% slide in profits ($16.4 billion).
This marks the third straight quarter where Microsoft's earnings were up but profits declined. Of course, Microsoft is not alone as the economy shrinking is affecting all tech companies. Even so, the company has some areas of long-term concern even if others continue to thrive.
And I will start with a thriving business, specifically, Microsoft Intelligent Cloud. This is the area that continues to drive Microsoft's success and is currently propping the company up. For its Fiscal FY23 Q2 earnings, Microsoft reveals Intelligent Cloud revenue rose to $21.5 billion, an 18% increase.
The company says a 31% growth for Azure is the main contributor to this result. As for Microsoft Cloud overall, the business took $27.1 billion, a 22% year-on-year increase.
For its Productivity and Business Processes section, Microsoft announced a 7% revenue increase up to $17.0 billion compared to the same quarter last year. This is the business that includes Microsoft's Office Commercial, Office Consumer, Dynamics, and LinkedIn services.
Microsoft CEO Satya Nadella brushed off declining growth in some business by talking up cloud and Microsoft's push into AI that has been driven by a deepnening partnership with OpenAI:
“The next major wave of computing is being born, as the Microsoft Cloud turns the world's most advanced AI models into a new computing platform,” said Satya Nadella, chairman and chief executive officer of Microsoft. “We are committed to helping our customers use our platforms and tools to do more with less today and innovate for the future in the new era of AI.”
Windows and Consumer
It is in the Windows and consumer sections where Microsoft is feeling the struggles of the economy. In its More Personal Computing division, Microsoft's revenue increased by 2% to $52.7 billion for the fiscal FY23 Q2.
However, the business that includes Windows Xbox, Surface, and Bing saw profits collapse to $14.2 billion, down 19% compared to a year ago. PC sales are tanking and that is directly impacting Windows. OEM licensing for the operating system fell 39% last quarter, although Microsoft was predicting this decline.
Surface also fell 39% amid declining PC hardware sales. As an aside, I think 2023 is an important year for Surface as Microsoft's devices have become dull in recent years. Certainly, it seems the current generation range of the Surface Pro 9, Surface Laptop 5, and Surface Studio 2+ have failed to entice customers.
Xbox and Microsoft's overall gaming also fell, with a 13% revenue drop over last year. It is worth noting Microsoft's Fiscal Q3 2022 came at a time when Xbox Series X demand was still sky high.
Tip of the day: Windows now has a package manager similar to Linux called “Winget”. In our tutorial, we show you how to install and use this new tool that allows the quick installation of apps via PowerShell or a GUI.
