I wanted to dive into Microsoft’s earnings – the company posted their second quarter of fiscal 2023 results this week. Revenue is up 2 percent, but net income has dropped by 12 percent. The results come just days after Microsoft announced 10,000 layoffs. Windows OEM revenue fell by 39 percent in Q2. Microsoft CFO Amy Hood provided guidance of mid to high 30 percent declines in Windows OEM revenue for Q3, alongside mid-40 percent declines for devices revenue.
Hood blamed a “slowdown in growth of new business” for having an effect on revenue from various businesses within the company, including revenue from stand-alone Office 365, Enterprise Mobility and Security (EMS), and Windows commercial products sold outside the Microsoft 365 suite.
Microsoft Office, cloud, and server products drove revenue in Q2. Microsoft’s cloud revenue is a significant influence on this quarter’s earnings, with overall intelligent cloud revenue up 18 percent year over year. Server products and cloud services revenues grew by 20 percent, and Azure and other cloud services revenue grew by 31 percent.
Due to the slowdown, Windows commercial products and cloud services will see “relatively flat” revenue growth year over year. And Microsoft also expects “relatively flat” growth in commercial bookings year over year, in part due to the slowdown.
One other bright spot — Teams surpassed more than 280 million monthly active users during the quarter, “showing durable momentum since the pandemic, and we continue to take share across every category—from collaboration to chat to meetings to calling.” That number is up from 270 million last year. The number of third-party apps with more than 10,000 users increased about 40 percent year over year.
The more than 500,000 active Teams Rooms devices is a 70 percent increase year over year. The number of customers with more than 1,000 rooms doubled year over year.
Microsoft has added more than 5 million public switched telephone network (PSTN) seats for Teams Phone over the last 12 months. Nadella called Teams Phone “the market leader in cloud calling.”
The call also revealed that Microsoft’s revenue from its security technology business was $20 billion in the past year, up from $15 billion a year ago.
Why do we care?
I went to this level of detail with Microsoft’s earnings as it’s an obvious indicator of what areas are hot and what are not when it comes to services too. Cloud, particularly Azure, Office, and the productivity suites, are the areas of growth. This also aligns with all of the market growth predictions, particularly with analysts (and with me, too). Hardware… not so much.
For providers, I’d be looking at the services revenue streams and determining how much is related to each growth area, and look to replace any that require those areas Microsoft is concerned about. This financial statement is the most explicit proxy for an IT Services firm I could ask for, particularly with Microsoft’s focus on business over the consumer.