Recently, Microsoft posted results that shed some positivity in light of the weak economy, thanks to the cloud business that hit Wall Street targets for the end of 2022, but it may miss expectations in the current quarter. The stable results that the company posted helped soothe the fears the tech giants had about their lucrative cloud ventures.
Microsoft had joined the other players in the tech field in laying off staff to stay afloat during the hard times. With the economy taking a turn for the worse, the prospect of customers looking to cut spending looked grim, and cloud revenue in the fiscal second quarter made up for some weakness in the PC unit. Microsoft had its intelligent cloud business valued at US$21.7 billion to US$22 billion in its third-quarter revenue.
“The small miss on Microsoft’s cloud earnings forecast is likely just a reflection of the new economic reality that businesses are facing and not a harbinger of something worse,” said Bob O’Donnell, chief analyst at TECHnalysis Research.
With the rapid rise in popularity that ChatGPT has seen, the cloud business is back under the spotlight. Microsoft is a large investor in this creation of OpenAI and the chatbot requires intense cloud computing services. “There’s a variety of ways that we can bring that technology either in specific offerings or to improve existing offerings,” said Brett Iversen, Microsoft’s head of investor relations, referring to OpenAI. The revenue from OpenAI-related business is predicted to show up in the revenue for Microsoft’s cloud service Azure in the future.
Chief Executive Satya Nadella claimed that it was too early to set apart AI’s contribution from the Azure cloud workload. Azure cloud product revenue also rose 31% in the second quarter and was in line with the predictions made previously. Azure has steadily solidified its position in the market, grabbing market share from Amazon’s AWS.
In 2022, Azure had a 30% share in the cloud computing market, climbing up from 20 % in 2018. On the other hand, AWS went from 71% to 55% during the same timeline. Compared to the estimate of US$52.94 billion, Microsoft brought in US$52.7 billion in the three months that ended Dec 31. Even though the revenue rose 2%, net income fell by 12% to US$16.4 billion, but the adjusted income of US$2.32 per share topped Wall Street’s consensus estimate of US$2.29.
In addition, sales at Microsoft’s PC segment, including Windows, devices, and search revenue declined almost 19% to US$14.2 billion as the PC market continues to shrink. In the current fiscal third quarter, the company expects revenue to drop from US$11.9 billion to US$12.3 billion. The company expects that the current fiscal year might hold some better turn of events.
