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Microsoft beats on earnings as cloud unit shows strong growth

Jordan Novet @jordannovet
Key Points
  • Microsoft's Azure cloud growth slowed to 31%, barely beating analysts' projections.
  • The software maker took a $1.2 billion charge in the quarter in connection with its decision to eliminate 10,000 employees, revise its hardware lineup and consolidate leases.

Microsoft shares rose as much as 5% in extended trading on Tuesday after the company reported fiscal second quarter earnings that topped analysts' estimates.

Here's how the company did:

  • Earnings: $2.32 per share, adjusted, vs. $2.29 per share as expected by analysts, according to Refinitiv.
  • Revenue: $52.75 billion, vs. $52.94 billion as expected by analysts, according to Refinitiv.

Microsoft's total revenue increased by 2% year over year in that quarter ending Dec. 31, the slowest rate since 2016, according to a statement. Net income fell to $16.43 billion from $18.77 billion in the year-ago quarter. The company took a $1.2 billion charge in the quarter in connection with its decision to cut 10,000 jobs, revise its hardware lineup and consolidate leases.

"We are focused on operational excellence as we continue to invest to drive growth," Amy Hood, Microsoft's finance chief, was quoted as saying in the statement.

Revenue in Microsoft's Intelligent Cloud segment amounted to $21.51 billion, up 18% and slightly above the $21.44 billion consensus among analysts polled by StreetAccount. The unit includes the Azure public cloud, Windows Server, SQL Server, Nuance and Enterprise Services. Revenue from Azure and other cloud services, which Microsoft does not report in dollars, grew by 31%, slightly above the estimate of just under 31% that analysts polled by CNBC and StreetAccount had expected. In the previous quarter, the category grew 35%.

The Productivity and Business Processes segment, containing Microsoft 365 — formerly known as Office 365 — productivity software, LinkedIn and Dynamics, delivered $17.00 billion in revenue, up 7% and more than the StreetAccount consensus of $16.79 billion.

The More Personal Computing segment featuring Windows, Xbox, Surface and search advertising contributed $14.24 billion, representing a revenue decline of 19%. Technology industry researcher Gartner  estimated  that during the fourth quarter of 2022 the PC business had its slowest growth since the company started keeping track of the market in the mid-1990s.

The decision to reduce head count "shows a commitment to margin defense despite top-line shakiness," analysts at Raymond James wrote in a note to clients Monday. They recommend buying Microsoft shares.

In the quarter the U.S. Federal Trade Commission sued Microsoft to block its pending $69 billion acquisition of game publisher Activision Blizzard , while the U.S. Defense Department awarded Microsoft and three other companies a cloud contract worth up to $9 billion combined. Also, Microsoft introduced Designer, an application in which people can craft documents such as social media posts and event invitations.

Excluding the after-hours move, Microsoft stock is flat so far this year, while the S&P 500 stock index is up 4%.

Executives will discuss its quarterly results with analysts and issue guidance on a conference call Tuesday starting at 5:30 p.m. ET.

This is breaking news. Please check back for updates.

Correction: This story has been updated to reflect that Microsoft's conference call with analysts will start Tuesday at 5:30 p.m. ET. A previous version gave an incorrect time.