Outlook for Microsoft’s cloud business slightly weaker than expected

Jan 24 (Reuters) – Microsoft Corp ( MSFT.O ) forecast cloud revenue for the current quarter slightly below Wall Street expectations, dampening some enthusiasm for its quarterly profit performance reported earlier on Tuesday.

Shares initially rose sharply in after-hours trading, but lost steam after the company released its cloud computing forecast.

Microsoft said its third-quarter intelligent cloud revenue would be $21.7 billion to $22 billion, compared with analysts’ forecast of $22.14 billion.

In the second quarter, Microsoft’s cloud services business helped offset a downturn in the PC market. The results could allay fears of a collapse in the tech industry, which has laid off tens of thousands of workers this year in anticipation of a recession.

Microsoft said revenue from its Azure cloud products rose 31% in the quarter, in line with estimates compiled by Visible Alpha, while its broader intelligent cloud unit posted revenue of $21.5 billion, compared with the Wall Street consensus of $21.4 billion compiled by Refinitiv. .

Azure could get a boost from cloud spending brought on by growth in artificial intelligence. “There are a number of ways we can use this technology for a specific product or improve an existing product,” said Brett Iversen, Microsoft’s director of investor relations, referring to OpenAI, in which the company is investing heavily.

OpenAI supports ChatGPT, a chatbot that can spit out love stories in Shakespeare or other prose styles through text commands. The model was also built using compute time on Azure.

Bob O’Donnell of TECHnalysis Research said: “Given the challenges of the current macroeconomic environment and concerns that things could get worse, I think you have to look at these Microsoft gains as a positive for tech as a whole. A reasonably positive signal.”

Still, Microsoft joined other big tech companies in turning to layoffs to weather tougher times, announcing last week that it would cut more than 10,000 jobs.

Azure is also steadily taking market share from leader Amazon.com Inc’s (AMZN.O ) Amazon Web Services (AWS).

According to estimates from Bank of America Global Research, Azure’s share of the cloud computing market will rise from 20% in 2018 to 30% by the end of 2022. Over the same period, AWS dropped from 71% to 55%.

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Azure’s growth has slowed steadily from around 50% a little over a year ago, but investors fear it could get worse. Shares of Amazon rose 3.25% after Microsoft reported its results.

For the three months ended Dec. 3, Microsoft’s revenue rose 2 percent to $52.7 billion. 31, compared with analysts’ average estimate of $52.94 billion, according to Refinitiv IBES data.

Net income fell 12 percent to $16.4 billion in the second quarter, but adjusted earnings of $2.32 a share topped Wall Street’s consensus estimate of $2.29, according to Refinitiv calculations.

Sales in Microsoft’s More Personal Computing segment, which includes Windows, devices and search revenue, fell 19% to $14.2 billion as the PC market continued to shrink. Revenue in the Productivity and Business Processes segment increased 7 percent to $17.0 billion.

Yuvraj Malik reported from Bengaluru and Jane Lanhee Lee from Oakland, California. Edited by Sriraj Kalluvila, Peter Henderson and Matthew Lewis

Our Standards: The Thomson Reuters Trust Principles.

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