Divisional results:

The company is organized into three equally sized broad segments: Productivity and Business Processes (legacy Microsoft Office, cloud-based Office 365, Exchange, SharePoint, Skype, LinkedIn, Dynamics), More Personal Computing (Windows Client, Xbox, Bing search, display advertising, and Surface laptops, tablets, and desktops), and Intelligent Cloud (infrastructure and platform as a service offerings Azure, Windows Server OS, SQL Server).

Productivity and Business Processes: The segment posted $16.5 billion in revenue, up 9%, versus 22% growth a year ago, beating analysts’ estimates.

More Personal Computing: Revenue from the segment totalled $13.3 billion, down slightly, versus 12% growth a year ago. Revenue from sales of Windows licenses to device makers dropped 15% from the prior year, steeper than any quarter since 2015 and worse than the outlook CFO Amy Hood gave in July for a decline in the high single digits. The company said the PC market continued to deteriorate during the quarter.

Microsoft isn’t the only company feeling the impact of the decline in PC sales. Shares of Intel, AMD, and Nvidia, which produce chips used in PCs, plummeted this year. From their recent all-time highs Intel has collapsed 64%, AMD is down 66% and Nvidia is off 68%.

Intelligent Cloud: $20.3 billion, up 20%, far lower than the 31% growth the segment saw a year ago, showing that sales have slowed from their pandemic driven highs. Azure growth fell to 35% in Q1 versus 50% in the same quarter last year. Intelligent Cloud business is the firm’s big revenue driver and has been one of the cornerstones of the company’s growth over the past few years. For the first time, revenue in the quarter from Intelligent Cloud exceeded 50% of overall company revenue.

Guidance for FY23 Q2:

Microsoft offered soft guidance which fell short of expectations for its Q2 2023, while also lowering the FY 2023 revenue outlook. The company sees $52.35 billion to $53.35 billion in revenue for the fiscal second quarter, which implies 2% growth at the middle of the range, while analysts’ expectations were for revenue of $56.05 billion.

“Our outlook has many of the trends we saw at the end of Q1 continue into Q2,” Amy Hood told analysts. Those trends include weaker PC demand, which impacts Windows OEM, lower advertising spend, which affects LinkedIn revenue, and high energy costs abroad, which cut into Microsoft’s cloud business margins. Hood said higher energy costs are causing about $250 million in extra expense each quarter this fiscal year. The materially weaker demand for PCs seen in September will continue to affect its consumer business. Microsoft is forecasting a Windows revenue from device makers to decline in Q2 2023 in the high 30% mark. Clearly macro-economic pressures continue to weigh on the company’s performance, which are unlikely to be exhausted within the next quarter.

Results of the big technology firms are seen as a key factor determining market sentiment, with September’s quarter disappointing reports and guidance from Big Tech so far this week, giving investors reasons to worry.

From a technical perspective:

The share price enjoyed a strong rally since March 2020 but after reaching an all-time high of $347.69 in November 2021, the stock lost its positive momentum and reversed course. From its record high to its most recent low the share price lost more than 37%. After the release of its quarterly earnings report the stock took a hit plunging more than 6% on Wednesday. We expect further weakness to unfold in the short-term as investors are resetting expectations. Although, we don’t think this is the start of a multi-quarter painful guidance reduction cycle, and we do continue to like the stock over the long-term, neither fundamentals, nor technicals are suggesting that the current down trend is approaching an inflection point. The daily and weekly momentum indicators are in bear market ranges, pointing to further weakness in the coming months. While rebounds are inevitable along the way a decline to the down trend channel line crossing at $211.00 is the first potential downside target. Over the medium-term, we see levels to $200.00 as achievable.