Microsoft Earnings Likely Slid Last Quarter Amid Economic Concerns

That would be the company’s lowest revenue growth since the quarter that ended June 2016. The company is scheduled to announce results after the market closes on Tuesday.

The software giant is the first of the tech titans to announce earnings for the quarter. It and others have recently announced layoffs of thousands of people to reflect a sudden lowering of expectations about future demand.

Last week the company announced plans to eliminate 10,000 jobs in response to the global economic slowdown, the company’s largest layoffs in more than eight years. In a blog post to employees, Chief Executive

Satya Nadella

pointed to the shaky economy, saying companies globally had begun to “exercise caution as some parts of the world are in a recession and other parts are anticipating one.”

Microsoft had been sheltered from much of the recent downturn because it gets the lion’s share of its sales from companies rather than advertising and consumer spending. However, it isn’t immune to the end of pandemic trends that turbocharged demand, hiring and investment as well as economic headwinds such as high interest rates.

Meanwhile, demand for Windows operating system software has fallen with sales of the personal computers that use it. Households, companies and governments that bought computers during the pandemic are scaling back.

Photos: Tech Layoffs Across the Industry

Worldwide PC shipments were down 29% in the fourth quarter last year compared with the previous year, according to preliminary data from the research firm Gartner Inc. Financial analysts don’t expect that trend to improve until 2024.

Microsoft is one of the top companies in cloud-computing services that have boomed during the pandemic. In the middle of the health crisis, Microsoft reported several quarters in a row of 50% or more year-over-year sales growth for its Azure cloud-computing platform, the world’s No. 2 behind

Amazon.com Inc.’s

cloud. While Azure and Microsoft’s other cloud services remain the main engine to the company’s growth, demand isn’t what it was even a year ago.

“The debate going forward is the pace with which people will move workload to the cloud,” said Brad Reback, an analyst at Stifel, Nicolaus & Co. “That’s the big debate now—what’s the sustainable growth rate here?”

Microsoft’s intelligent cloud division, which contains its Azure cloud-computing business, saw a spike during the pandemic as app usage increased. Usage has since cooled, and customers have become more circumspect about their cloud bills, Mr. Reback said.

The company has been betting the next wave of demand for cloud services could come from more companies and people using artificial intelligence. It has been deepening its relationship with the AI startup OpenAI, the company behind the image generator Dall-E 2 and the technology behind ChatGPT, which can answer questions and write essays and poems.

Videogames and Microsoft’s Xbox videogame consoles are increasingly important businesses for the company. The videogaming industry is going through a slowdown as pandemic-related restrictions ease and people spend less time at home. It could also be hurt as consumers spend less.

The company has made a huge bet on the sector a year ago with its $75 billion plan to acquire videogame giant

Activision Blizzard Inc.

Last month the Federal Trade Commission sued to block the acquisition, saying the deal would give Microsoft the ability to control how consumers beyond users of its own Xbox consoles and subscription services access Activision’s games. Microsoft then filed a rebuttal saying the deal won’t hurt competition in the videogaming industry. It could take months before it is decided in the U.S. and elsewhere whether the deal can go through.

Microsoft shares have fallen around 18% in the past 12 months, broadly in line with the tech-heavy Nasdaq Composite Index. Over the same period,

Meta Platforms Inc.

has tumbled 53% and Amazon.com Inc. shares have fallen 32%.

Write to Tom Dotan at [email protected]