Microsoft net profit drops 12% as it takes $1.2bn hit related to job cuts

Company's net profit dropped to $16.4bn in the three months to the end of December with revenue growing 2% to $52.7 bn

A Microsoft office in New York. The company's revenue during the October-December period jumped 2 per cent to $52.75 billion. Bloomberg

Microsoft said its fiscal second quarter net profit dropped more than 12 per cent, as the company took a $1.2 billion hit following its decision to cut 10,000 jobs, as it revises its hardware portfolio and consolidates leases.

The company's net profit dropped to $16.4 billion in the three months to the end of December, from the same period a year earlier, the company said in a statement on Tuesday. It was down about 6.8 per cent on a quarterly basis.

Revenue during the October-December period jumped 2 per cent to $52.75 billion, missing analysts' expectations of $52.94 billion. The second quarter of the 2023 financial year marked the Redmond, Washington-based company’s slowest rate of quarterly revenue growth since 2016.

The company's stock, which has dropped more than 16 per cent in the past year, fell 1 per cent in after-hours trading to $239.60 on Tuesday.

Revenue in Microsoft’s intelligent cloud division, which includes Azure public cloud, increased 18 per cent annually to $21.5 billion. Sales from Azure and other cloud services, which Microsoft does not report in dollars, grew by nearly 31 per cent.

“The next major wave of computing is being born, as the Microsoft cloud turns the world’s most advanced AI [artificial intelligence] models into a new computing platform,” said Satya Nadella, Microsoft’s chairman and chief executive.

“We are committed to helping our customers use our platforms and tools to do more with less today and innovate for the future in the new era of AI.”

Since 2016, Microsoft has committed to building Azure into an AI supercomputer for the world, serving as the foundation of its vision to democratise AI as a platform.

The company’s last quarter diluted earnings dropped 11 per cent to $2.20 a share, compared to the $2.29 a share expected by analysts, Refinitiv reported.

Its operating income decreased 8 per cent to $20.4 billion in the previous quarter compared to the prior year period.

“We are focused on operational excellence as we continue to invest to drive growth … Our commercial offerings continue to drive value for our customers,” said Amy Hood, executive vice president and chief financial officer of Microsoft.

Microsoft’s productivity and business processes division, which includes both its Microsoft Office business and revenue from LinkedIn, surged 7 per cent to $17 billion in the December quarter.

LinkedIn revenue increased almost 10 per cent annually. Microsoft did not give a dollar figure for its LinkedIn revenue and did not disclose the number of users.

Microsoft 365 Consumer — a bundle of various apps — subscribers increased to 63.2 million at the end of the last quarter, up 12 per cent on a yearly basis, the company said.

Sales in the more personal computing division dipped 19 per cent to $14.2 billion in the quarter.

Search and news advertising revenue excluding traffic acquisition costs increased 10 per cent, while devices revenue decreased 39 per cent.

Xbox content and services revenue decreased 12 per cent in the second quarter.

Microsoft also returned $9.7 billion to shareholders in the form of share repurchases and dividends in the second quarter of fiscal year 2023, a decrease of 11 per cent compared to the second quarter of fiscal 2022.

The company spent more than $6.8 billion on research and development, about 13 per cent of its total sales in the quarter. This is 18.8 per cent more than what was spent on R&D in the same period in 2021.

Microsoft’s total cash, cash equivalents and short-term investments stood at more than $99 billion by the end of last year, an annual drop of 20.6 per cent.

Last week, Microsoft announced laying off 10,000 of its 221,000 employees to adjust to changing macroeconomics and to cut overall costs, amid a wave of industry layoffs.

The job cuts will conclude by the end of March, Mr Nadella said in a note to employees.

Earlier this week, Microsoft announced the third phase of its long-term partnership with ChatGPT-maker OpenAI through a new multiyear, multibillion-dollar investment. The agreement follows Microsoft’s previous investments in the company in 2019 and 2021.