Microsoft CEO Satya Nadella leaves the Elysee Palace after a gathering with the French President Emmanuel Macron in Paris on May 23, 2018.
Aurelien Morissard | IP3 | Getty Images
Microsoft executives on Tuesday told analysts to expect a continuation of the weak pace of business that emerged in December, which hurt the software maker’s fiscal second quarter results.
“In our business business we expect business trends that we saw at the top of December to proceed into Q3,” Amy Hood, Microsoft’s chief financial officer, said on a conference call.
Specifically, the corporate saw less growth than expected in Microsoft 365 productivity software subscriptions, identity and security services, and business-oriented Windows products.
Growth in consumption of the corporate’s cloud computing service Azure also slowed down, she said.
The corporate sells products akin to Xbox consoles and Surface PCs to consumers, but most of its revenue comes from business clients akin to corporations, schools, and governments. That is where the impact will show up. A metric dubbed Microsoft Cloud — including Azure, business subscriptions to Microsoft 365, business LinkedIn services and Dynamics 365 enterprise software — now represents 51% of total sales.
Large organizations are optimizing their spending on cloud services, a key area of growth for Microsoft, CEO Satya Nadella said. That behavior also played out within the fiscal first quarter, and in October, Amazon also talked about the way it had been helping cloud customers optimize their costs.
Microsoft made product changes to spotlight places where customers could lower their cloud bills, Nadella said.
Hood said said Azure growth would decelerate more. In the total December quarter, revenue from Azure and other cloud services rose 42% in constant currency. But in December, Hood said, growth was within the mid-30% range in constant currency, and he or she forecast an additional slowdown of 4-5 percentage points in the present quarter, which ends in March.
The slowdown that began in December also needs to carry through to Q3 results for Windows business products and cloud services, a category that features Windows volume licenses for businesses, Hood said. Her forecast included flat revenue for Windows business products and cloud services, compared with a decline of three% within the fiscal second quarter.
WATCH: Economic recession has already been priced into stocks, says Virtus’ Joe Terranova
