A Microsoft office building in Bellevue, Washington.

Microsoft cuts it outlook across its key divisions as it warned of cautious client spending.
A patchy outlook helped give up gains realized after reporting above-expectation gains in Azure.
Tech giants continue to contest with a depressed economic environment that suppresses revenues. 

Microsoft has cut its outlook for revenue in the current quarter, as growth in its cloud business slows and its enterprise software division falters.

The downbeat third-quarter forecast, delivered during an earnings call Wednesday, feeds into investors’ concerns about trouble ahead for companies and techs in particular, as a recession looms.

Microsoft shares initially rose 4.6% after the tech giant released its second-quarter earnings report after the market closed Tuesday, after its cloud computing division Azure posted better-than expected results. But they gave back those gains in premarket trading Wednesday, down 0.2%,  as the disappointing outlook sank in.

It posted earnings of $2.32 per share against analyst expectations of $2.29, while revenues of $52.75 billion beat expectations of $52.94 billion by analysts, according to Refinitiv.

But its outlook for future revenues, cut by 3 percentage points, signaled just how bad economic conditions could get this year. It expects between $50.5 billion to $51.5 billion in revenue in the third quarter, compared with expectations for over $52 billion, as growth in its Azure cloud-computing unit falters.

It revised its forecast downward by 4 percentage points for its core enterprise-focused division, which includes Office 365 subscriptions and Linkedin. The company said it saw a fallback in business there in December already.

“In our commercial business, we expect the business trends that we saw at the end of December to continue into Q3,” Amy Hood, Microsoft’s CFO, said in an earnings call Tuesday. “While customers are more cautious in their spend, we also have the opportunity to improve our execution given our strong position in durable growth markets.”

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Its outlook for revenues in its Azure division was also cut, after growth in the cloud-computing division slowed to 31%.

Its personal computing revenue forecast was also lowered, in a sign that the effects of inflation and rising interest rates are continuing to weigh on businesses’ and consumers’ spending plans. 

Tech companies are dealing with a depressed economic environment after a near two-year bull market for stocks, with customers pulling back on key revenue channels like digital advertising and subscription-based services. The latest cut shows tech giants are unsure how deep those effects will be. 

“Microsoft’s results showed a better-than-expected performance for its cloud computing division Azure, showing that there is resilient demand from firms who want to make efficiencies and cost-savings,” Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown. 

“But overall revenue growth lower than expectations, companies and consumers are clearly belt tightening and Microsoft is cautious about the quarter ahead with sales momentum slowing.”

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Source:: Business Insider


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