Microsoft today announced results for the fourth quarter of its 2022 financial results, reporting revenue of $51.9 billion and net income of $16.7 billion. Revenue increased 12 percent, and net income increased only 2 percent. But while revenue rose, Microsoft saw some of its core businesses, including Windows and Xbox, begin to decline.
The PC market has been booming throughout the pandemic, but PC shipments have fallen dramatically last quarter — nearly 13 percent according to Gartner. It’s the biggest drop in nine years, thanks to geopolitical tensions, inflation and ongoing supply chain challenges.
Microsoft Windows OEM revenue, the price PC makers pay to Microsoft for putting Windows on hardware, fell 2 percent in the fourth quarter, driven by what Microsoft called “a production halt and a deteriorating PC market.”
Kendra Goodenough, Director of Investor Relations at Microsoft, says in a call with the edge. Despite the weak PC market, the Surface is doing well on the business side. Surface revenue increased 10 percent for the fourth quarter, even though no big Surface devices launched during the quarter. “The consumer side is definitely going down at a faster rate when it comes to the overall demand environment right now, so when we think about the commercial strength on the Surface, that’s where we get more help on this Surface. [revenue] number,” Goodenough explains.
Microsoft updated the compact Surface Laptop Go in June with an Intel 11th Gen processor, but we’ll have to wait until the fall to see a bigger update to the Surface lineup. 2022 marks 10 years of Surface usage, so expect the usual fall event for new devices.
All eyes are now on the planned price increases for CPUs and chips, and how they might affect the PC market. Intel plans to increase prices for its flagship CPUs and a wide range of other chips later this year, including Wi-Fi and other connectivity chips.
On the Xbox side, hardware revenue fell 11%, along with a 6% decline in Xbox content and services revenue. Microsoft attributed the denial of services to “less hours of engagement and monetization” across first and third-party addresses.
“The decline that you see on Xbox is in part a reflection of the fact that we launched this… about two years ago, so with the supply constraints we’ve seen over the last couple of years, it kind of stretched that period for consoles,” Goodenough says. “We’re still seeing strong demand, but we’re giving up on those highs we’ve seen in the last couple of years with the launch.”
Microsoft revealed last quarter that 10 million people had used the company’s Xbox Cloud Gaming service, and that’s sure to grow even more thanks to fortnite Now it is the only game that can be streamed for free on the service. Microsoft didn’t offer an update to Xbox Game Pass subscribers this quarter, after the service grew to 25 million in January following holiday releases of Age of Empires IV, Forza Horizon 5, And the Infinite aura.
Microsoft is also not discussing its planned $68.7 billion acquisition of Activision Blizzard today. The purchase is expected to expire in fiscal year 2023, and will see Microsoft deploy franchises such as CansAnd the DiabloAnd the Note and watchAnd the Call of duty And the Crush the candy.
Outside of games and Windows, Microsoft Office products, the cloud, and servers continue to grow at amazing rates. Revenue for commercial office products and cloud services increased 9 percent this quarter, and the office consumer was up 9 percent year over year. Microsoft 365 consumer subscriptions now stand at 59.7 million, as Microsoft continues to entice consumers with Office subscriptions and services like Microsoft Teams.
Revenue from Microsoft’s server and cloud products also jumped percentage year-over-year, thanks to a 22 percent growth in revenue from Azure and other cloud services.
LinkedIn continues to grow at Microsoft, thanks to the demand for ads. LinkedIn’s revenue rose 26 percent this quarter, which Microsoft attributes to its talent and marketing solutions business. Revenue from search and news ads was also up 15 percent year-over-year.
These latest results came after Microsoft was forced to cut its guidance for the quarter in June, and the company cited unfavorable foreign exchange rates. The dollar is strong against a number of currencies at the moment, amid geopolitical tensions and inflation. Microsoft is affected when you convert foreign currencies into dollars. Microsoft is now also seeing effects from a softening of the PC market, and even lower ad market spending as the economic outlook looks more uncertain.
Microsoft will now place an earnings call with investors at 5:30 PM ET / 3:30 PM PT, and we’ll update this article with any relevant comments.
Update, Jul 26 4:45PM ETThis article has been updated with comments from Microsoft.