Microsoft revenue forecast under threat from PC market slump, strong dollar, Telecom News, ET Telecom | Job Binary


    A smartphone is seen in front of the Microsoft logo in this illustration taken on July 26, 2021.  REUTERS/Dado Ruvic/Illustration
A smartphone is seen in front of the Microsoft logo in this illustration taken on July 26, 2021. REUTERS/Dado Ruvic/Illustration

Author: Yuvraj Malik

Microsoft Corp will post its slowest quarterly revenue growth in five years on Tuesday, prompting some analysts to question whether the company can maintain its full-year outlook in the face of a slowing PC market and a strong dollar.

Rising inflation this year has fueled concerns of a global economic slowdown and forced consumers and businesses to spend on PCs and laptops, reducing sales of key Microsoft products including Windows and the Office suite.

Adding to the squeeze, the dollar rose more than 17%, driven by earnings from companies with large global operations. Microsoft earns more than 50% of its revenue outside the United States.

“All eyes will be on Microsoft’s ability to sustain FY23 guidance for double-digit revenue growth, which we believe is at risk,” Guggenheim analysts said last week.

UBS said that the share price may be largely behind the forecast.

At least 15 brokerages cut their price targets on the software giant in October, and the company’s shares have fallen by more than a quarter in 2022.

According to research firm Gartner, PC shipments fell 19.5% in the third quarter of this year.

Windows licenses make up 12% to 13% of Microsoft’s revenue and the downturn in the PC market is expected to reduce its sales by 100 points, Morningstar senior analyst Dan Romanoff said.

Some of the blow is expected to be offset by Microsoft’s cloud services unit Azure, which will grow 20% in the first quarter, according to data from Refinitiv.

“Our CIO survey work suggests that enterprise IT usage of Azure is more likely to be shared than Amazon AWS,” JP Morgan said in a recent note.

But signs of a slowdown in cloud adoption are beginning to emerge. According to an analysis by Piper Sandler, the revenue of the top 100 software companies will grow by 22% in 2022 and 20% in 2023, down from 33% in 2021.

Software companies are the largest customers of cloud platforms and their business growth is taken as a proxy for the cloud services sector.



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