Microsoft (MSFT) will report its fiscal Q1 earnings after the closing bell on Tuesday, providing investors and analysts with a look at whether the company’s high-flying cloud computing business can offset an expected drop in PC sales.
Here’s what analysts are expecting from the tech giant for the quarter compared to how it performed in the same period last year.
Income: $49.6 billion expected versus $45.3 billion last year.
Adj. EPS: $2.31 expected versus $2.27 last year.
Productivity and Business Processes: $16.1 billion in expected versus $15 billion last year.
SmartCloud: $20.3 billion expected versus $17 billion last year.
More Personal Computing: $13.1 billion expected versus $13.3 billion last year.
Microsoft’s Intelligent Cloud business, which includes its Azure cloud computing platform, has been one of the cornerstones of the company’s growth over the past few years. In Q4, Microsoft’s cloud division made up $20.9 billion of the company’s $51.9 billion in total revenue. According to Synergy Research Group, Microsoft controlled 21% of the cloud market in Q2. Amazon held 34% of the market, while Google had 10%.
But sales have slowed from their pandemic-driven highs when revenue in the segment was up as much as 31% year-over-year in fiscal Q1 2022. Microsoft reported 26% growth in its Intelligent Cloud division in both Q2 and Q3, and 20 % growth in Q4.
“Given the macro backdrop for global enterprise and cloud spending, the Street will be watching this report and guidance closely to determine if demand in Redmond has remained healthy for cloud spending given the gloomier background surrounding the Microsoft story,” Wedbush analyst Dan Ives wrote in an investor note ahead of Microsoft’s earnings.
While Microsoft’s cloud business has remained healthy, the broader PC market has fallen off dramatically compared to the explosive growth it saw during the pandemic.
According to Gartner, worldwide PC shipments declined 19.5% from 84.1 million units in Q3 2021 to 68 million in Q3 2022, falling back to pre-pandemic levels.
“This quarter’s results could mark a historic slowdown for the PC market,” Gartner analyst Mikako Kitagawa wrote in a release. “While supply chain disruptions have finally eased, high inventory has now become a major issue given weak PC demand in both the consumer and business markets.”
Microsoft isn’t the only company feeling the impact of the decline in PC sales. Shares of Intel (INTC), AMD (AMD), and Nvidia (NVDA), which produce chips used in PCs, plummeted this year. Intel has collapsed 46% year-to-date, while AMD and Nvidia are off 57% and 54%, respectively.
The holiday season is generally a bright spot for PC makers as consumers buy laptops and desktops for family members and themselves. Whether that will hold up this year, though, remains to be seen.
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