Microsoft Sees Dark Clouds Forming Over Azure Business Amid PC Market Slump

Microsoft Corporation MSFT dampened expectations that cloud computing demand would mitigate the sagging PC market in its first quarter earnings call.

What Happened: The Redmond, Washington-based tech giant said that revenue growth from its cloud computing platform — Azure — would drop by 5 percentage points in the current quarter minus the impact of currency fluctuations.

Azure and other cloud services revenue grew 35% and 42% in constant currency in the first quarter, according to Microsoft  CFO Amy Hood, which was a percentage point lower than expected.

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Hood said the lower revenue growth was due to “continued moderation in Azure consumption growth, as we help customers optimize current workloads while they prioritize new workloads.”

CEO Satya Nadella said, on cloud computing, that in the current period, Microsoft is going to “optimize for long-term customer loyalty, but proactively helping them optimize their spend, which I think is the right thing for us to be doing as a company for – on behalf our shareholders long term.”

Why It Matters: Revenue for the Microsoft Cloud segment came in at $25.7 billion in the first quarter, a rise of 24% on a year-over-year basis.

Meanwhile, personal computing revenue declined moderately to $13.3 billion in the same period on a year-over-year basis.

Overall, Microsoft reported earnings per share of $2.35, which beat analyst estimates of $2.32, according to Benzinga Pro data. 

Going forward, Microsoft expects revenue to be driven by Azure with expected revenue growth driven by consumption with “some impact from the Q1 trends.”

Price Action: Microsoft shares closed 6.7% lower at $233.85 in the after-hours trading, after closing 1.4% higher at $250.66 in the regular session,
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