Microsoft CEO Satya Nadella leaves the Elysee Palace after meeting with French President Emmanuel Macron in Paris May 23, 2018.
Aurelien Morissard | IP3 | beautiful pictures
“In our commercial business, we expect the business trends we saw at the end of December to continue into the third quarter,” said Amy Hood, chief financial officer, Microsoft, said on a conference call.
In particular, the company saw lower-than-expected growth in subscriptions to Microsoft 365 productivity software, identity and security services, and enterprise-oriented Windows products.
The company’s Azure cloud computing service consumption growth has also slowed, she said.
The company sells products like Xbox consoles and Surface PCs to consumers, but the majority of its revenue comes from commercial customers like companies, schools, and governments. That’s where the impact will come in. A metric called Microsoft Cloud — which includes Azure, commercial subscriptions to Microsoft 365, commercial LinkedIn services, and Dynamics 365 enterprise software — now accounts for 51% of total sales.
CEO Satya Nadella said large organizations are optimizing their spending on cloud services, a key growth area for Microsoft. That behavior also took place in first quarter financialsand in October, Amazon also talked about how they have helped their cloud customers optimize their costs.
Nadella said Microsoft has made product changes to highlight where customers can reduce their cloud bills.
Hood said Azure growth will slow further. For the full December quarter, revenue from Azure and other cloud services grew 42% in constant currency. But in December, Hood said, growth was in the 30% range in constant currency, and she forecast growth would fall another 4-5 percentage points in the current quarter, which ends in March.
The slowdown starting in December will also affect third-quarter results for Windows commercial products and cloud services, a category that includes Windows enterprise volume licenses, Hood said. Karma. Her forecast includes flat revenue for Windows commercial products and cloud services, compared with a 3% decline in the fiscal second quarter.