Microsoft has reported lower earnings than analysts expected during a PC market that the vendor said deteriorated in June.
Microsoft reported that OEM revenue of Windows dropped by two per cent year-over-year during the quarter, though sales of Surface devices actually rose 10 per cent to an undisclosed amount. In total, Microsoft reported net income of US$16.7 billion, up two per cent, on revenue that increased by 12 per cent from a year ago to $51.9 billion. Analysts polled by Yahoo Finance expected revenue of $52.4 billion.
Redmond blamed the pandemic, specifically production shutdowns that took place in Asia and crippled the supply chain. Windows OEM revenue declined by two per cent driven by production shutdowns that continued through May and a PC market that deteriorated in June, Microsoft said on a presentation slide that accompanied its report.
That's in line with reports by Gartner and IDC, which noted that the global PC market dipped sharply after strong years during the pandemic's height in 2020 and 2021. According to Gartner, the PC market dropped 12.6 per cent to 72 million units in the second quarter, the sharpest drop in nine years.
The decline we saw in the first quarter of 2022 has accelerated in the second quarter, driven by the ongoing geopolitical instability caused by the Russian Invasion of Ukraine, inflationary pressure on spending and a steep downturn in demand for Chromebooks, said Mikako Kitagawa, research director at Gartner, in a statement earlier this month.
Supply chain disruptions also continued, but the major cause of PC delivery delays changed from component shortages to logistics disruptions. Enterprise buyers continued to experience longer PC delivery times than usual, but the lead times began to improve by the end of the second quarter, partially because key cities in China reopened in the middle of the quarter.
Kitagawa said that that PC vendors have been forced to raise prices to maintain profits, benefiting commercial PC vendors. Microsoft directly attributed its higher Surface revenue to commercial sales.
As it usually does, Microsoft's cloud business supported it. Microsoft reported 20 per cent growth to $20.9 billion in its Intelligent Cloud business, led by 40 per cent growth in Azure and its other cloud services. Revenue in Productivity and Business Processes climbed 13 per cent to $16.6 billion, with revenue in both Office consumer and Office's commercial business growing by nine per cent.
Revenue in More Personal Computing, the PC business, grew by two per cent to $14.4 billion. Xbox hardware sales dipped by 11 per cent, and Xbox content revenue fell as gamer engagement and spending fell.