Microsoft Q2 Earnings Fall Short of Expectations Amid China Production Holdups, Strong Dollar Hits Sales

Microsoft on Tuesday said that its earnings in the recently ended quarter fell shy of expectations as personal computer sales suffered from production holdups in China and sagging demand.

The US technology giant reported profit of $16.7 billion (roughly Rs. 1,33,400 crore) on revenue of $51.9 billion (roughly Rs. 4,14,550 crore), topping the same quarter a year earlier but missing market forecasts.

The earnings stumble was due mostly to foreign exchange rates and shutdowns of personal computer factories in China, Wedbush analyst Dan Ives said in a note to investors.

Microsoft said that the strong US dollar made its offerings more costly in foreign markets, hurting sales.

"The most important core business; cloud and commercial bookings was relatively rock solid despite fears," Ives said.

"The core DNA of the Microsoft growth story is cloud and core Azure growth which was healthy this quarter and appears to have momentum into 2023 despite economic headwinds."

Microsoft shares were up some 4 percent in after-market trades that followed release of the earnings figures.

"In a dynamic environment we saw strong demand, took share, and increased customer commitment to our cloud platform," said Microsoft chief financial officer Amy Hood.

Shutdowns at computer production facilities in China in May, and a deteriorating market for personal computers, cost Microsoft some $300 million (roughly Rs. 2,400 crore) in revenue it would have made from Windows operating systems bought to power the machines, the earnings report indicated.

The personal computer market had been in steady decline prior to the pandemic, as people turned to smartphones or tablets.

A massive shift to shopping, working, socialising, and playing from home reignited demand for desktop computing power, but it remains to be seen whether that appetite will remain post-pandemic.

Ad revenue at Microsoft's online news, search, and career social network LinkedIn suffered due to companies cutting marketing budgets due to broad economic woes, the company said.

The tech veteran based in the US state of Washington also logged $126 million (roughly Rs. 1,000 crore) in operating expenses related to scaling back its operations in Russia because of that country's invasion of Ukraine.

Microsoft saw consumers spend less on Xbox videogame content in the quarter compared to the same period a year earlier, in a possible sign that many are out playing in the real world more as pandemic restrictions ease.

However, Microsoft's cloud, business and productivity offerings continued to thrive.

"We see real opportunity to help every customer in every industry use digital technology to overcome today's challenges and emerge stronger," said Microsoft chief executive Satya Nadella.