Microsoft on Tuesday reported a 14% drop in profit for the July-September quarter compared with the same time last year, reflecting a weak market for personal computers affecting its Windows business.
The company reported quarterly net income of $17.6 billion, or $2.35 per share, which still slightly beat Wall Street expectations despite falling short of last year’s results.
The software maker from Redmond, Washington posted revenue of $50.1 billion in the quarter, up 11% from last year, also beating expectations.
Analysts expected Microsoft to earn $2.31 per share on revenue of $49.7 billion for the quarter.
Microsoft’s personal computing business, centered on its Windows software, was widely expected to take a hit due to economic uncertainties such as inflation. In addition, many consumers bought new devices during the pandemic, helping to cripple demand.
The company receives licensing revenue from computer manufacturers who install its Windows operating system on their products. Revenue from those licenses fell 15% in the quarter, Microsoft said.
Worldwide shipments of personal computers fell nearly 20% in the quarter from the same time last year, according to market research firm Gartner, which said it was the steepest decline since it began tracking the PC market in the mid-1990s. A disappointing back-to-school sales season for new computers also contributed to a fourth consecutive quarter of year-over-year decline, Gartner said.
Microsoft shares slipped more than 6% in after-hours trading on Tuesday. Microsoft Chief Financial Officer Amy Hood said in a conference call with investors that some of the negative factors affecting the last quarter could extend into the near future. Referring to recent layoffs and last year’s new hires, she said net number growth “will be minimal” into the current quarter.
Microsoft has offset some of the Windows-related losses with the strength of its cloud computing services delivered to large enterprises and other institutions.
Revenue from that segment grew 20% from the same time last year to $20.3 billion, making it the largest source of Microsoft’s sales and growth during the period. But growth in the company’s flagship Azure cloud computing platform was lower than what analysts had predicted, in part because of what Hood described as a continued rise in the cost of energy needed to run powerful data centers.
The second largest business segment, made up of productivity-related software such as the Office suite of work products, grew 9% to $16.5 billion in revenue.