Microsoft reassures investors with confident full-year forecast

Microsoft shrugged off worries about the impact of a slowing economy with an upbeat outlook for its most recent fiscal year on Tuesday, sending its shares up more than 6 percent in after-hours trading.

The optimism came despite a sharp decline in the PC market, the strong US dollar and signs of macroeconomic weakness all having a negative impact Microsoft’s Growth in the last quarter, keeping sales and profit below the lowered guidance published last month.

Chief Executive Satya Nadella said in a call with analysts that Microsoft has taken market share in its businesses and demand for its Cloud Services should remain stable as many IT users look for more cost-effective ways to handle their computing.

“There’s something going on in the macro environment that feels like it’s playing to our strength,” Nadella said, with cloud computing acting as a “deflationary force” that helped Microsoft even as the economy faltered.

Microsoft shares are down 28 percent from their November peak, in line with the Nasdaq Composite, as investors fear they could be hit by falling consumer and business demand.

On Tuesday, however, the company forecast that revenue and earnings growth would reach at least 10 percent in the current fiscal year, which started this month, even after the impact of a strong dollar.

The solid full-year guidance came despite a relatively weak guidance for the current quarter. Microsoft said it expects revenue of between $49.25 billion and $50.25 billion for the three months ended September, down from the $51.7 billion Wall Street analysts had forecast.

The software company said its operating profits would be further boosted this year by a change in the depreciation of its servers and network equipment. Going forward, the transmission would be amortized over six years instead of four, adding $3.7 billion to operating income this year.

For the most recent quarter, Microsoft said it missed $1 billion in revenue compared to what was expected three months ago as a result of further strengthening sales dollar, Accelerating deterioration in PC market partly due to manufacturing shutdowns in China and weaker advertising spending. It also reported a $126 million charge from winding up much of its business in Russia and $113 million in employee severance costs from a recent cost-cutting round.

However, solid demand for cloud services has allowed it to withstand much of the pressure. Revenue on its Azure cloud platform rose 46 percent, excluding the impact of the strong dollar, slightly slower than the previous quarter’s 49 percent growth. It also reported a 35 percent increase in cloud bookings at constant exchange rates, in line with the first few months of the year.

Bookings were “significantly” above internal expectations and showed customers are making “major and longer-term commitments” to the Azure platform, Nadella said.

The slump in PC sales left growth at Microsoft’s More Personal Computing division at 5 percent in constant currencies, compared with 13 percent in the previous three months. According to Gartner, global PC shipments fell 12.5 percent in the second quarter, the largest decline in nine years.

Microsoft reported revenue of $51.9 billion, up 12 percent year over year, while earnings per share rose 3 percent to $2.23. Wall Street had expected sales of $52.4 billion and earnings of $2.30 per share.

Excluding the impact of the stronger dollar, revenue growth slowed to 16 percent from 21 percent in the first three months of 2022.

Microsoft reassures investors with confident full-year forecast Source link Microsoft reassures investors with confident full-year forecast

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