Microsoft forecast suggests gloomy tech environment will continue

Microsoft forecast suggests gloomy tech environment will continue

Microsoft CEO Satya Nadella leaves the Elysee Palace after a meeting with French President Emmanuel Macron in Paris on May 23, 2018.

Aurelien Morissard | IP3 | fake images

Microsoft Executives told analysts on Tuesday to expect a continuation of the weak pace of business that emerged in December, hurting the software maker’s fiscal second-quarter results.

“In our commercial business, we expect the commercial trends we saw in late December to continue into the third quarter,” Amy Hood, Microsoft’s chief financial officer, said on a conference call.

In particular, the company experienced lower-than-expected growth in Microsoft 365 productivity software subscriptions, identity and security services, and business-oriented Windows products.

Growth in consumption of the company’s cloud computing service Azure has also slowed, he said.

The company sells products like Xbox consoles and Surface PCs to consumers, but most of its revenue comes from commercial customers like businesses, schools and governments. That is where the impact will show. A metric called Microsoft Cloud, which includes Azure, Microsoft 365 business subscriptions, LinkedIn business services, and Dynamics 365 business software, now accounts for 51% of total sales.

Large organizations are optimizing their spending on cloud services, a key area of ​​growth for Microsoft, CEO Satya Nadella said. That behavior played out in the fiscal first quarter as well, and in October, Amazon also talked about how it had been helping cloud customers optimize their costs.

Microsoft made product changes to highlight places customers could lower their cloud bills, Nadella said.

Hood said Azure’s growth would slow further. In the full quarter of December, revenue from Azure and other cloud services increased 42% in constant currency. But in December, Hood said, growth was in the mid-30% range in constant currency, and he forecast a further slowdown of 4-5 percentage points in the current quarter, which ends in March.

The slowdown that began in December should also carry over to third-quarter results for Windows commercial products and cloud services, a category that includes Windows for Business volume licensing, Hood said. His forecast included flat revenue for commercial Windows products and cloud services, compared with a 3% decline in the fiscal second quarter.

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