Cloud division saves Microsoft from weak Xbox and Windows performance

Bottom line: Microsoft reported positive year-over-year revenue growth of $52.7 billion for the three-month period ending December 31, 2022, thanks in large part to strong performance from its cloud computing services.

The $52.7 billion haul represented a modest two percent gain compared to the same period a year earlier. Net income, however, slid 12 percent year over year to $17.37 billion and diluted earnings per share checked in at $2.32 (down 11 percent compared to Q4 2021).

Microsoft’s productivity and business processes division (Office, LinkedIn, Dynamics) generated $17 billion in revenue, up seven percent YoY, while its intelligent cloud division soared 18 percent to $21.5 billion, both of which helped to offset losses in other areas.

Windows OEM revenue decreased 39 percent, mirroring the performance of Microsoft’s devices category. Xbox content and services revenue also took a hit, down 12 percent compared to the 2021 holiday season.

Microsoft recently extended its partnership with OpenAI, building on a partnership that was first forged in 2016 and reaffirmed in both 2019 and 2021. Microsoft described the new deal as a multiyear, multibillion dollar investment that will accelerate AI breakthroughs. According to Bloomberg, Redmond is committing an additional $10 billion.

Last week, the Washington-based tech giant announced it would be reducing its overall labor pool by 10,000 jobs. With the cuts, Microsoft joins a host of other big tech companies that are scaling back their workforces after hiring heavily during the pandemic.

Related: These are the severance packages tech giants like Google, Meta and Amazon are offering to fired employees

Looking ahead, Microsoft expects FY23 Q3 revenues of between $50.5 billion and $51.5 billion. The biggest takeaway here is that Microsoft expects revenue from its “More Personal Computing” division (Windows OEM, Xbox, devices and search) to fall to between $11.9 billion to $12.3 billion, from $14.2 billion in the most recent quarter.

In related news, Xbox and Bethesda are currently streaming their Developer Direct showcase which promises an inside look at some of the biggest games coming to Xbox, PC and Game Pass.

Image credit: Valent Lau, Tadas Sar