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Sunday, January 29, 2023

Software group: Microsoft with a slump in profits – forecast disappoints the stock market

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In the Windows operating system business, Microsoft was recently hit hard by the downturn in the PC market. The cloud business remained a ray of hope, but growth there is also weakening.

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The software giant Microsoft struggled at the end of the year in view of high inflation and fears of recession and earned significantly less. In the three months ended December, net income fell 12 percent year-on-year to $16.4 billion. Sales increased 2 percent to $52.7 billion, the weakest growth in more than six years.

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Overall, however, the quarterly figures were in line with expectations. Earnings in the important cloud business were also slightly higher than Wall Street analysts had assumed. In an initial reaction, the share initially rose by around four percent in after-hours trading on Tuesday.

After the forecast for the current quarter, however, the course turned negative. Among other things, Microsoft predicted that the growth of the Azure cloud platform would slow by four to five percentage points. Azure is a central growth driver for the group and was a ray of hope in the past quarter with an increase of a good 30 percent.

Microsoft announced last week that it would lay off around 10,000 employees. After other tech companies such as the Facebook group Meta, Twitter and Amazon had already resorted to major job cuts, the wave of layoffs reached the Windows group. The cuts and other restructuring measures cost Microsoft $1.2 billion. Nevertheless, the group wants to expand its commitment to the developer of the writing AI software ChatGPT, OpenAI, with a “multi-billion” investment.

Sales of the operating system are falling massively

Microsoft boss Satya Nadella emphasized the importance of software with artificial intelligence for the future. “Over time, every app will be an AI app,” he said in a conference call with analysts after the quarterly figures were presented. Microsoft wants to embed OpenAI technology deep into its cloud platform.

Meanwhile, in its Windows leg, Microsoft is being hit by the downturn in the PC market. Business with the sale of the operating system to computer manufacturers shrank by 39 percent in the past quarter. And in the current quarter, the group again considers a decline of a similar magnitude to be possible.

There were also declines in the games business related to the Xbox console. But Microsoft surpassed 120 million active users on its Game Pass subscription service, which allows video games to be played over the Internet.

Source: Stern

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