Microsoft reports earnings that fall short of already low expectations

SEATTLE — Uncertainty and troubles in the global economy hit Microsoft, which on Tuesday said quarterly profit it fell short of Wall Street’s expectations and its own.

The tech giant said its sales for the quarter ended June 30 were $51.9 billion, up 12 percent from a year earlier. Profit rose 2% to $16.7 billion.

The results exceeded even Microsoft’s own low expectations. At the beginning of June the company reduced its forecast for the quarter, taking into account the increase strong US dollar.

“Obviously we are incredibly optimistic about everything else we have,” said Chris Capossela, the company’s chief marketing officer. said following the release of the revised manual. “That’s one thing we can’t control.”

Since then, conditions seem to have deteriorated further. Foreign exchange problems caused by the war in Ukraine and wider economic uncertainty cost Microsoft $595 million in the quarter as it converted sales in Europe, Japan and elsewhere back into US dollars. And a slowdown in PC production in China and a drop in consumer demand have led to more than $300 million in sales of the Windows operating system preinstalled on new PCs.

The slowdown in advertising spending on LinkedIn and Microsoft’s search products resulted in more than $100 million in revenue losses.

If not for currency issues, Microsoft’s flagship cloud computing platform, Azure, would be up 46%. Instead, it rose 40 percent, less than investors expected. Without a strengthening dollar, the company’s two main corporate lines of business, which it calls “Performance and Business Processes” and “Intelligent Cloud,” would meet initial guidance it provided to investors in April.

“Commercial demand seemed pretty good overall,” Brett Iversen, Microsoft’s head of investor relations, said in an interview Tuesday. “The long-term thesis that people want to move to the cloud to digitize their business, to be able to do more, or to be able to save money still seems to hold true.”

He said this was reflected in strong long-term booking commitments, including a record number of more than $1 billion in Azure deals.

Total revenue from Microsoft’s commercial cloud offerings, which also includes Office 365 subscriptions, increased 28 percent to $25 billion.

“We see a real opportunity to help every customer in every industry use digital technologies to overcome today’s challenges and become stronger,” said CEO Satya Nadella.

Microsoft’s personal computer business rose 2 percent to $14.4 billion, helped by a 2 percent decline in sales of its Windows operating system, which comes preinstalled on personal computers. Investors were ready to see some weakness because PC shipments have fallen due to weakening demand and supply chain issues caused by China’s coronavirus lockdown.

Xbox content and services revenue fell 6% as consumers spent less time playing video games.

With unemployment remaining near the lowest level in 50 years, LinkedIn, the professional social network bought by Microsoft in 2016, is up 26% from 34% growth in the previous quarter.

The company said it has $126 million in costs associated with curtailing its operations in Russia and another $113 million in severance pay costs for laid-off employees.

mr. Iversen said the layoffs were for “a small number of positions” and the company expected to increase headcount in the new fiscal year, which began on July 1.