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Microsoft beats expectations, despite slowdown in cloud growth

Microsoft (MSFT) reported its fiscal Q1 earnings after the closing bell on Tuesday, beating analysts' expectations on the top and bottom line, despite cloud spending growth falling year-over-year.

Here are the most important numbers from the report compared to what analysts were expecting from the company.

Revenue: $50.1 billion versus $49.6 billion expected.

EPS: 2.35 versus $2.29 expected.

Productivity and Business Processes: $16.5 billion versus $16.1 billion in expected.

Intelligent Cloud: $20.3 billion versus $20.3 billion expected.

More Personal Computing: $13.33 billion versus $13.1 billion expected.

Shares of Microsoft were 1.6% following the announcement.

“In a world facing increasing headwinds, digital technology is the ultimate tailwind,” CEO Satya Nadella, said in a statement. “In this environment, we’re focused on helping our customers do more with less, while investing in secular growth areas and managing our cost structure in a disciplined way."

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.

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. The segment saw 20% growth in Q1.

Azure growth specifically fell from 50% in Q1 2022 to 35% in Q1 2023.

Microsoft Corp. CEO Satya Nadella. (AP Photo/Ted S. Warren)Microsoft is also dealing with a dramatic fall off in the PC market, which has seen sales collapse following the huge growth it experienced 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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