The shortage of chips reduces the profits of Microsoft

Microsoft Corp. said the shortage of computer chips cut the expected sales of its Windows operating system in the last three months of 2018, and that the shortage will likely continue to hurt sales in the coming months.

The shortage, which affected the long-time partner Intel Corp. in the final months of 2018, led to a 5% drop in revenue in the second fiscal quarter of Microsoft customers who manufacture computers.

Microsoft does not disclose revenue for the business. But Chief Financial Officer Amy Hood said in an interview on Wednesday that the limited supply of chips "restricted an otherwise healthy PC ecosystem."

Total revenues increased 12% to $ 32.47 billion. That was not what they expected the $ 32,510 million that badysts surveyed by Refinitiv expected, a failure that initially caused shares to fall by 4% after hours.

The action, which ended with a regular sale of up to 3.3%, recovered some of those losses after Ms. Hood's earnings guide for Microsoft's three major divisions, mainly the cloud, productivity software and personal computing, was in line with Wall Street forecasts.

Earnings reached $ 8,420 million, derived from a loss of $ 6,300 million a year ago linked to the United States tax law enacted in December 2017. The adjusted profit was $ 1.10 per share, one penny more than the badysts waited.

Microsoft has been in a financial crisis for years. Its profits have been driven by a focus on the rapid growth of the cloud computing market, where the company has become the main challenger of Inc. The increase helped Microsoft regain the crown as the company most valuable in the world at the end of last year, a title I did not have since 2003.

The shortage of chips slowed the growth of Microsoft's "More personal computing" segment, of which Windows is the most important component, by 1.5% in the quarter, said Hood. Stifel Nicolaus badyst Brad Reback estimates that the figure was $ 182 million.

That shortage has not been resolved, Hood said. "We hope, according to the information we have from our partners, that it will continue" until the first half of 2019, he said.

Although Windows remains important, Microsoft is increasingly confident in its Azure cloud computing business to drive growth. In the quarter that just ended, Azure grew 76%, a strong demonstration as the pace of growth has slowed as Azure grows. That's the same growth rate as in the first fiscal quarter, but lower than in any other period since Microsoft began releasing the metric three years ago.

Microsoft does not disclose revenue figures for Azure, but Mr. Reback estimated that it totaled $ 2.87 billion for the quarter, and said "the law of large numbers" suggests that growth will moderate even when the company reports on income.

Microsoft's growing cloud business helped unseat Apple Inc. late last year as the world's most valuable company. Prior to that, Microsoft held the title for the last time in 2003, when Windows took it to the top of its power over the technology industry.

For the quarter that just ended, Microsoft's capital spending, the money largely distributed to build mbadive data centers for its Azure business worldwide, totaled $ 3.9 billion. That compares with the $ 2.7 billion in the previous year and the $ 4.3 billion in the last quarter.

Ms. Hood said the spending would be "bulky", going up and down from quarter to quarter, a slightly different sentiment than Intel's warning last week to reduce demand for its data center chips.

LinkedIn, the professional social network that Microsoft acquired for $ 27 billion in 2016, continues to pay off. In addition to integrating LinkedIn into its Office productivity and Dynamics sales force services, Microsoft continues to record strong revenue gains from unit services and advertising operations. For the quarter that just ended, LinkedIn revenues increased 29%. The unit now has 610 million members, Microsoft chief executive Satya Nadella told badysts.

That helped Microsoft's Productivity and Business Processes segment grow 13% to $ 10.10 billion. The retail version of its Office 365 online productivity service increased 34%.

Revenue related to the game in the important holiday quarter increased by 8%, compared to a 44% increase in the last quarter. Xbox software and services gained 31%.

–Micah Maidenberg contributed to this article.

Write to Jay Greene at [email protected]

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