Microsoft’s earnings forecast under threat of PC market slump, powerful dollar | Biden News


Oct 24 (Reuters) – Microsoft Corp ( MSFT.O ) is set to post its slowest quarterly revenue in more than five years on Tuesday, with some analysts questioning whether the company can maintain its annual outlook ahead of a PC market slowdown. and a strong dollar.

A spike in inflation this year has fueled concerns about a global economic slowdown and forced consumers and businesses to spend more on PCs and laptops, reducing sales of some of Microsoft’s flagship products including Windows and the office suite.

Adding to the pressure, the dollar climbed more than 17%, weighing on the earnings of companies with large global operations. Microsoft earns more than 50% of its revenue outside the United States.

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“All eyes will be on Microsoft’s ability to maintain FY23 guidance for reported double-digit revenue growth, which we believe is at risk,” Guggenheim analysts said last week.

UBS said the stock appears to be largely priced in a possible walk back on the forecast.

At least 15 brokerages cut their price targets on the software giant in October, and the company’s shares have fallen by more than a quarter in 2022.


PC shipments fell 19.5% in the third quarter this year, according to data from research firm Gartner.

Reuters Graphic

Windows licenses make up about 12% to 13% of Microsoft’s revenue and the decline in the PC market is expected to reduce its sales by 100 basis points, said Dan Romanoff, a senior analyst at Morningstar.

The blow is expected to be slightly offset by Microsoft’s Azure cloud services unit, which will grow 20% in the first quarter, according to data from Refinitiv.

“Our CIO survey work suggests that enterprise IT usage of Azure is likely to gain share against Amazon AWS,” JP Morgan said in a recent note.

But signs of a slowdown in cloud adoption have begun to emerge. Analysis by Piper Sandler showed that total revenues at the top 100 software companies are estimated to grow 22% in 2022 and 20% in 2023, down from 33% in 2021.

Software companies are the largest customers of cloud platforms and their business growth is taken as a proxy for the cloud services sector.

Reuters Graphic


** Microsoft’s first quarter revenue is expected to rise 9.5% to $49.61 billion, the first sub-10% growth since the third quarter of fiscal 2017 – Refinitiv

** Earnings per share are estimated at $2.30


* 48 of the 52 analysts covering the stock rate it a “buy” or higher and four rate it a “hold”

* The average price target is $315, down from $336 in early 2022

* Microsoft is trading at $246.64 on Monday

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Reporting from Yuvraj Malik in Bengaluru; Editing by Aditya Soni and Sriraj Kalluvila

Our Standards: Thomson Reuters’ Trust Principles.


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