Microsoft announced on Tuesday that its earnings for the recently ended quarter fell short of expectations as PC sales suffered from production backlogs in China and falling demand.
The US tech giant reported profit of $16.7 billion on sales of $51.9 billion, beating the year-ago quarter but missing market forecasts.
The decline in earnings was mainly due to exchange rates and the shutdown of PC factories in China, Wedbush analyst Dan Ives said in a note to investors.
Microsoft said the strong US dollar made its offerings more expensive in foreign markets and hurt sales.
“The main core business, cloud and commercial bookings, has been relatively stable despite concerns,” Ives said.
“The core DNA of the Microsoft growth story is cloud and core Azure growth, which was healthy this quarter and appears to be gaining momentum into 2023 despite economic headwinds.”
Microsoft shares rose about 4 percent in after-market trading following the release of earnings figures.
“In a dynamic environment, we saw strong demand, participated, and increased customer engagement for our cloud platform,” said Amy Hood, Microsoft’s chief financial officer.
Shutdowns of computer manufacturing plants in China in May and a deteriorating market for PCs cost Microsoft about $300 million in revenue it would have earned from Windows operating systems purchased to power the machines, the earnings report said.
The PC market was steadily declining before the pandemic as people turned to smartphones or tablets.
A massive shift to shop, work, socialize, and play from home has reignited demand for desktop computing power, but it remains to be seen if that post-pandemic appetite will hold up.
Ad revenue at Microsoft’s online news, search and careers network LinkedIn suffered as companies cut marketing budgets due to broader economic woes, the company said.
The Washington state-based tech veteran also recorded $126 million in operating expenses related to the reduction of its operations in Russia due to that country’s invasion of Ukraine.
Microsoft saw consumers spend less on Xbox video game content in the quarter than they did in the same period last year, a possible sign that many are playing more in the real world as pandemic restrictions ease.
However, Microsoft’s cloud, business, and productivity offerings continued to thrive.
“We see a real opportunity to help every customer, in every industry, leverage digital technology to meet today’s challenges and emerge stronger from them,” said Satya Nadella, Microsoft chief executive.
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