Microsoft has just disclosed its Q2 2023 fiscal financial results. The company made $52.7b in revenue and $16.4b in net income during quarter 2 of its fiscal financial year. While Microsoft made two percent higher revenue than last quarter, its net income has dropped by twelve percent, which is concerning.
The fiscal financial results came out just a few days after the software maker announced a cut down of 10,000 jobs. Microsoft forecasted a tough three-month time for Windows OEM hardware and revenue. Interestingly, these results complement the state of the personal computer industry at present.
According to Canalys analysis, PC shipments dropped by 16% last year. Gartner reveals almost a 29% year-over-year decline in Q4. It showed the most significant quarterly shipped failure after it started following the PC market in the 1990s. Therefore, revenue related to Microsoft Windows hit hard.
The PC manufacturers pay the Windows OEM revenue to Microsoft to bring Windows onto machines. It was reduced by 39 percent in the second quarter of 2022. Microsoft said continued PC market dimness and a strong year drove this situation.
PC Market & Devices
Gartner revealed the total amount of PC shipments last year was almost like pre-COVID levels. Therefore, it is not vague to see the boom in laptop purchases is over. Many customers have relatively new personal computers that witnessed a sale during the pandemic era.
Although the number of PCs delivered reduced throughout the quarter, the usage level of Windows is 10 percent higher than in pre-pandemic time. The deterioration in the PC industry has impacted revenues earned by Microsoft devices, including HoloLens and PC accessories. The company saw a drop of 39 percent in the devices’ revenue in Q2, despite launching the Surface Laptop 5, Surface Studio 2 Plus, and Surface Pro 9 gadgets before the holidays.
Amy Hood, the CFO of Microsoft, said the company modified its hardware portfolio among downsizings. The software maker writes down $1.2b in its quarter two earnings associated with severance costs, hardware changes, and the price of lease consolidation since it creates higher density in its workrooms.
The PC market may not improve next quarter as well. The CFO guided about mid to high declines in Windows OEM revenue for quarter three, alongside a forty percent decline for device revenue. Microsoft’s move to downsizing has hit the HoloLens division hard. The company's struggle with HoloLens is on the record, which began after Alex Kipman left the company following misconduct allegations and Microsoft argued plans for a HoloLens III.
Xbox is Down, whereas Cloud grows
Like other Microsoft hardware, Xbox went down this quarter. Xbox hardware received a reduced revenue by 13% alongside a 12% drop in Xbox products and services revenue.
According to Microsoft, the content and revenue decrease related to a strong prior year. Microsoft witnessed a 13 percent year-over-year decline in its gaming revenue.
Microsoft 365 consumer subscriptions grew by 12% this quarter and reached 63.2m. The software giant’s latest launch – a $1.99 subscription for Microsoft 365 Basic appeared in this January. It is yet to see how it influences the number of subscribers in the new results.
On the other hand, Cloud services revenue increased by seven percent, whereas Office 365 commercial earnings grew by 11 percent. Azure ML revenue has doubled for five consecutive quarters. While Microsoft did not reveal OpenAI data, it may receive 75% of relevant profits until it secures its investment return and a 49% stake in the organization.
Microsoft Cloud has turned the world’s most modern Artificial Intelligence models into a new computing platform. The CEO of the software giant says the company is committed to helping its customers use Microsoft platforms and tools to perform more effectively with fewer sources and innovate for the future in the upcoming era of Artificial Intelligence.