Yahoo Finance Slow Growth in Azure to Impact Microsoft's (MSFT) Q3 Earnings
Microsoft’s MSFT third-quarter fiscal 2023 results, scheduled to be reported on Apr 25, are likely to be driven by the continued yet slow growth in its cloud platform, Azure.
For the fiscal third quarter, Microsoft expects Intelligent Cloud revenues (Azure falls under the segment) in constant currency (cc) to increase between 17% and 19% to $21.7-$22 billion.
Microsoft warned that revenue growth from Azure, the cloud computing platform that has become one of the main engines of its business, would slow by 4 or 5 percentage points sequentially in the fiscal third quarter, leaving aside the effect of currency movements.
The Zacks Consensus Estimate for Intelligent Cloud revenues is currently pegged at $21.836 billion, indicating 14.6% growth from the figure reported in the year-ago quarter.
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Sluggish Yet Continued Growth in Azure to Drive Top Line
Microsoft’s cloud service has been benefiting from continued demand for cloud infrastructure monitoring, web-based application performance management and human capital management solutions, fueled by the increasing migration of workloads to the cloud.
Microsoft’s cloud computing business segment has been closely watched after its last quarter saw Azure’s growth slowing to 38% from 46% in cc a year prior. For the fiscal third quarter, a slowdown in Microsoft’s cloud computing business is anticipated, as large customers pause their spending in the face of a slowing economy.
Growth could slow but the longer-term upward trend remains intact, as companies may prioritize digital transformation in its reduced budget to prepare for subsequent recovery.
Microsoft’s Azure has a presence in more than 60 regions worldwide and is available in 140 countries. Azure’s increase is anticipated to have bolstered this Zacks Rank #3 (Hold) company’s cloud business and strengthened its competitive position against Amazon’s AMZN Amazon Web Services (“AWS”) and Alphabet’s GOOGL Google Cloud. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
In the last reported quarter, the operating income for Amazon’s AWS was $5.2 billion, down 1.7% year over year. The expansion of its AWS portfolio has been helping Amazon maintain its dominance in the cloud domain by gaining more customers.
Alphabet recorded a 32% year-over-year jump in Google Cloud revenues to $7.3 billion, which contributed 9.6% to its quarterly revenues.
Microsoft Joins Other Tech Giants to Cut Jobs
Microsoft has been slowing down the hiring for its Office, Windows and Teams groups to better prepare itself for the fiscal year 2023 and contend with the current economic environment.
Microsoft has been leading the artificial intelligence (AI) release race since it partnered with OpenAI. This alliance has allowed it to incorporate ChatGPT technology into many of its tools, including Bing and Microsoft 365.
In March, Microsoft conducted a third round of job cuts that impacted employees in roles related to supply chain, AI and Internet of Things. Microsoft laid off 559 workers from its Bellevue and Redmond operations. The third wave of layoffs is part of the 10,000 job cuts announced by Microsoft earlier this year.
Amazon announced that it was laying off 9,000 more staff in the coming weeks, adding to some 18,000 previously disclosed job cuts. Amazon’s latest layoffs will be concentrated in its struggling Alexa business. Some employees, in charge of AI ethics supervision at Google, were recently fired among a larger group of 12,000 workers at Alphabet.
Many top tech companies including Salesforce CRM have been announcing layoffs as it feels the effects of inflation, rising interest rates and currency headwinds. In January, Salesforce first announced that it was laying off 10% of the workforce, while more layoffs could be on the way.
Microsoft is reportedly ready to cut more positions from its global workforce as tech giants continue paring headcount to ride out rough economic conditions.
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