Microsoft Cloud and PC Sales Slow in Q1
Despite Microsoft increasing overall revenues in the first 2023 fiscal quarters, the company did see a slowdown in some of its core businesses.
The company, which released its Q1 financial figures on Tuesday, recorded $50.1 billion in overall revenue – an 11% increase over the previous quarter. However, this is a decrease in the previous month's 14% and accounts for the slowest revenue growth since 2017.
Azure missed its projected revenue mark, despite the 35% increase, showing that overall usage of Microsoft's cloud was not as strong as expected (revenue increases with total usage of the technology).
While Microsoft is tepid on Azure second quarter revenues, Microsoft CFO Amy Hood said Microsoft is still betting big on the cloud infrastructure. "Revenue will continue to be driven by Azure, which, as a reminder, can have quarterly variability primarily from our per-user business and from in-period recognition depending on the mix of contracts," said Hood during a call discussing the quarterly results. "We expect Azure revenue growth to be sequentially lower by roughly 5 points on a constant currency basis."
Microsoft also saw less-than-stellar numbers for Windows OS. The company announced a decline of 15% in installs of Windows on new PCs and Hood said to expect a continued decline in this sector through June of 2023.
The Q1 figures also saw its Xbox brand slow for the first time since the start of the pandemic, dropping 3% for the quarter – the first drop since the pandemic accelerated the sector's growth. Hood said she expects Xbox to continue to drop "in the low to mid-teens" as the company waits to close on the blockbuster $68.7 billion acquisition deal for Activision Blizzard.
While Microsoft does expect declines in many of its key businesses, the company said it is hopeful that Microsoft 365 subscriptions, which increased by 7% (11% in current currency rates) will keep at its same growth level in the near future. "In Windows commercial products and cloud services, customer demand for Microsoft 365 and our advanced security solutions should drive growth in the mid-single digits or low double digits in constant currency," said Hood.
Here are some more highlights from the Q1 report:
- LinkedIn revenue increased 17% (21% in constant currency).
- Dynamics products and cloud services revenue increased 15% (22% in constant currency).
- Office Commercial products and cloud services revenue increased 7% (13% in constant currency).
- Devices revenue increased 2% (8% in constant currency).
Even in the face of lower-than-expected results, Microsoft said its main business sectors are strong, even as a possible recession looms. "In a world facing increasing headwinds, digital technology is the ultimate tailwind," said Microsoft Chairman and CEO Satya Nadella. "In this environment, we're focused on helping our customers do more with less, while investing in secular growth areas and managing our cost structure in a disciplined way."