Microsoft, Alphabet results disappoint

MICROSOFT Corp posted its weakest quarterly revenue growth in five years, throttled by the surging US dollar and a slump in sales of Windows software to PC makers. 

Sales in the first quarter (1Q), which ended Sept 30, rose 11% to US$50.1 billion (RM223.27 billion), the software maker said last Tuesday in a statement. Net income was US$17.6 billion, or US$2.35 a share. 

While both numbers topped analysts’ average estimates, revenue from Microsoft’s closely watched Azure cloud-computing services decelerated to 35% — partly because of foreign currency exchange rates. Excluding the impact of the rising dollar, Azure sales rose 42%, below some predictions. 

Still, Microsoft gets almost half of its revenue overseas. The US dollar soared to new highs against a basket of foreign currencies last month, meaning Microsoft’s international sales were worth less when brought back home. 

Revenue from sales of Windows software to PC makers swooned 15% in the recent period. 

On average, analysts had estimated fiscal 1Q sales of $49.6 billion and profit of US$2.29 a share, according to a Bloomberg survey. Demand remained strong for cloud services, with Office 365 sales to businesses perform- ing slightly better than expected, and the majority of large customers that signed up for Microsoft 365 licenses opting for the higher-end version, CFO Amy Hood said in an interview. 

The company also saw growth in large and long-term contracts for Azure, she said. 

Total cloud revenue in the period rose 24% to US$25.7 billion, Microsoft said in slides posted on the company’s website. Microsoft also noted that cloud service costs are rising because of increasing energy prices. 

Hood said higher energy prices are increasing the cost of delivering cloud services, mainly in Europe — an issue that is having a greater impact than Microsoft had expected. She anticipates that will continue into the second half of the company’s fiscal year. 

Sales in the productivity group, largely Office software, rose to US$16.5 billion, above the US$16.1 billion average estimate of analysts polled by Bloom- berg. Intelligent Cloud revenue, made up of Azure and server software, came in at US$20.3 billion, matching projections. In More Personal Computing, consisting of businesses like Windows, Surface devices and Xbox, sales were US$13.3 billion. That compares to the US$13.1 billion average estimate of analysts. 

Meanwhile, after reporting earnings and revenue that missed expectations, Google parent Alphabet Inc said last Tuesday it would slow hiring and control expenses, signalling that it was girding for tough times ahead as the economy falters. 

Google’s advertising juggernaut, which had largely dodged the digital-ad slowdown that hit rivals earlier this year, is no longer immune. Alphabet said third-quarter (3Q) sales, excluding payments to distribution partners, were US$57.27 billion. That compared to the average analyst projection for US$58.18 billion. 

Net income was US$1.06 per share, less than Wall Street’s estimates for US$1.25 per share. 

Alphabet CEO Sundar Pichai said the company was “focused on moderating operating expense growth”. CFO Ruth Porat, meanwhile, said she expected headcount additions to fall by more than half in the 4Q compared to the previous period. 

There were disappointing results across Alphabet’s sprawling portfolio. Search and other related businesses, the company’s financial engine, generated 3Q sales of US$39.54 billion, compared to analyst estimates of US$40.87 billion. Philipp Schindler, Google’s chief business officer, said some advertisers have begun to trim spending. 

Google’s YouTube missed the mark by an even wider margin, reporting ad sales of US$7.07 billion, compared to analysts’ average estimate of US$7.47 billion. 

One bright spot was Google’s closely watched cloud offering, which lost US$699 million, better than analysts’ projections for a loss of US$814.25 million. 

The unit has yet to turn a profit and Google is a distant third in the cloud market, trailing Amazon. com Inc and Microsoft. Yet, the cloud business is nonetheless viewed as one of the company’s best bets for growth as the core search business matures. 

Alphabet’s Other Bets — a collection of nascent companies that includes self-driving car company Waymo and life sciences unit Verily — saw US$209 million in revenue on losses of US$1.61 billion. Bloomberg 


  • This article first appeared in The Malaysian Reserve weekly print edition

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