Microsoft's cloud business outlook slightly behind expectations

Microsoft's cloud business outlook slightly behind expectations

Forecasts cloud revenue for Q3 of US$21.7 billion to US$22 billion.

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Microsoft forecast cloud revenue for the current quarter at just below Wall Street expectations, dampening some enthusiasm for its beat on quarterly profit.

Microsoft said its third-quarter intelligent cloud revenue would be US$21.7 billion to US$22 billion (S$28.5 billion to S$28.9 billion), while analysts forecast US$22.14 billion.

In the second quarter, Microsoft's cloud services business helped offset a slump in the personal computer market. 

Those results will likely allay fears of a meltdown in the tech industry which has laid off tens of thousands of employees this year in anticipation of an economic downturn.

Microsoft said Azure cloud product revenue rose 31 percent in the quarter, in line with estimates compiled by Visible Alpha, while its broader intelligent cloud division posted revenue of US$21.5 billion, versus a Wall Street consensus of US$21.4 billion compiled by Refinitiv.

Azure could get a boost from cloud spending from the growth of artificial intelligence.

"There's a variety of ways that we can bring that technology either in specific offerings or to improve existing offerings," said Brett Iversen, Microsoft's head of investor relations, referring to OpenAI, in which the company is investing heavily.

OpenAI is behind the chatbot sensation ChatGPT which can spit out a love story in the style of Shakespeare or other prose with a text command.

That model has been built with computing time on Azure as well.

“Given the challenges of the current macroeconomic environment and the concerns that things could have been much worse, I think you have to consider these Microsoft earnings a reasonably positive sign for tech overall," said Bob O'Donnell of TECHnalysis Research.

Still, Microsoft has also joined other big tech companies in turning to layoffs to ride out harder times, announcing last week it was cutting over 10,000 jobs.

Azure has also steadily grabbed market share from leader Inc's Amazon Web Services (AWS).

Azure ended 2022 with a 30 percent share in the cloud computing market, up from 20 percent in 2018, according to estimates from BofA Global Research. AWS dropped to 55 percent from 71 percent during the same period.

Azure growth has slowed steadily from around 50 percent a little over a year ago, but investors had feared worse. Shares of Amazon rose 3.25 percent after the Microsoft results.

Microsoft's revenue rose 2 percent to US$52.7 billion in the three months ended December 31, compared with the average analyst estimate of US$52.94 billion, according to Refinitiv IBES.

Sales at Microsoft's more personal computing segment, which includes Windows, devices and search revenue, declined 19 percent to US$14.2 billion as the PC market continued to shrink.

Revenue in the productivity and business processes segment rose seven percent to US$17.0 billion.

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