Microsoft's prediction indicates a gloomy tech environment will persist

January 26, 2023: On Tuesday, Microsoft executives told analysts anticipated a continuation of the weak speed of business that started in December, which hurt the software maker’s fiscal second-quarter results.

“In our commercial firm, we anticipate business trends that we saw at the December-end to continue into the third quarter,” Amy Hood, Microsoft’s chief financial officer, said.

In particular, the firm saw less growth than anticipated in Microsoft 365 productivity software subscriptions, identity and security services, and business-oriented Windows products.

She said that growth in consumption of the firm’s cloud computing service Azure is also decreasing.

The company sells products like Xbox consoles and Surface PCs to consumers, but most revenue comes from commercial clients such as companies, schools, and administration. That’s where the impact will show up. A metric dubbed Microsoft Cloud, including Azure, commercial subscriptions to Microsoft 365, commercial LinkedIn services and Dynamics 365 enterprise software, now represents 51% of total sales.

Large organizations to optimize their spending on cloud services, a key growth area for Microsoft, CEO Satya Nadella said. That behaviour also played out in the first financial quarter, and in October, Amazon also talked about how to help cloud customers optimize their costs.

Microsoft made product transfers to highlight places where customers could decrease their cloud bills, Nadella stated.

Hood said Azure’s growth would decrease more. In the full December quarter, revenue from Azure and different cloud services increase by 42% in constant currency. But in December, Hood said, the increase was in the mid-30% range in constant currency, and she forecasted a further slowdown of 4-5 percentage points in the current quarter, ending in March.

The slowdown that began in December should carry through to Q3 results for Windows commercial things and cloud services, a category including Windows volume licenses for businesses, Hood said. Her forecast had flat revenue for Windows commercial products and cloud services, in comparison with a decline of 3% in the fiscal second quarter.