Yesterday, Microsoft reported its financial results for the first quarter of fiscal year 2023. For the quarter ended September 30, 2022, Microsoft had revenue of $50.1 billion, an 11% increase year-over-year, driven primarily by cloud services. The company had operating income of $21.5 billion, an increase of 6% year-over-year. However, the tech giant saw declines in net income and earnings per share. Net income for the quarter was $17.6 billion, a 14% decrease year-over-year, and diluted earnings per share of $2.35, a 13% decrease year-over-year.

“In a world facing increasing headwinds, digital technology is the ultimate tailwind,” said Satya Nadella, chairman and CEO of Microsoft, in an October 25 news release. “In this environment, we’re focused on helping our customers do more with less, while investing in secular growth areas and managing our cost structure in a disciplined way.”

Quarterly highlights

Microsoft reported the following highlights for the first quarter of fiscal year 2023:

• Revenue in the Productivity and Business Processes division was $16.5 billion, a 9% increase year-over-year.
• Office Commercial products and cloud services revenue increased 7%, driven by Office 365 Commercial revenue growth of 11%.
• Office Consumer products and cloud services revenue increased 7%. The company ended the quarter with 61.3 million subscribers to Microsoft 365, compared to 59.7 million at the end of the fourth quarter of fiscal year 2022.
• LinkedIn revenue grew 17%, and Dynamic products and cloud services revenue grew 15%, driven by Dynamics 365 revenue growth of 24%.
• Revenue in the Intelligent Cloud division was $20.3 billion, a 20% increase year-over-year.
• Server products and cloud services revenue grew 22%, driven by Azure and other cloud services revenue growth of 35%.
• Revenue in the More Personal Computing division was $13.3 billion, a slight decrease year-over-year.
• This included a 15% decrease in Windows OEM revenue, and a 3% decrease in Xbox content and services revenue. These revenue declines were offset by an 8% increase in Windows Commercial products and cloud services, a 16% increase in search and news ad revenue (minus traffic acquisition costs), and a 2% increase in device revenue.
• Microsoft returned $9.7 billion to shareholders in share repurchases and dividends, an 11% decrease for the same period last year.

Amy Hood, executive vice president and CFO for Microsoft, also commented on the company’s first quarter performance.

“This quarter Microsoft Cloud revenue was $25.7 billion, up 24% (up 31% in constant currency) year-over-year. We continue to see healthy demand across our commercial businesses including another quarter of solid bookings as we deliver compelling value for customers,” Hood said.

Second round of layoffs

The company’s first-quarter financials come just a week after Microsoft quietly announced they would be laying off staff for the second time since July. In the latest round, employees across the company will be impacted, including employees in the Xbox division, legal, strategic missions and technology, and other divisions. Though the company did not confirm the total, sources say that fewer than 1,000 employers will be laid off, reports Insider.

“Like all companies, we evaluate our business priorities on a regular basis, and make structural adjustments accordingly,” a Microsoft spokesperson said. “We will continue to invest in our business and hire in key growth areas in the year ahead.”

Strategic realignment

In July, Microsoft also announced a workforce reduction as part of a larger “strategic realignment.” Though specific numbers weren’t given, the job cuts represent less than 1% of Microsoft’s global workforce of approximately 180,000.

“Today we had a small number of role eliminations. Like all companies, we evaluate our business priorities on a regular basis, and make structural adjustments accordingly,” Microsoft said in a statement emailed to Bloomberg. “We will continue to invest in our business and grow headcount overall in the year ahead.”

Microsoft stock

The earnings report seems to have positively impacted Microsoft stock. As of 5:47 p.m. Eastern, Microsoft stock was valued at $250.66 per share, compared to $237.53 per share on October 17, the day the layoffs were first reported.

Insider Take

Even the biggest companies are getting hit with the changes in the global economy. Like many tech companies, Microsoft saw a massive increase in the need for cloud-based services during the pandemic. As people returned to work, and Microsoft shut down operations in Russia, Microsoft finds itself reimagining its workforce. What divisions are the most profitable? Which need the most support? And, sadly, which departments or divisions are overstaffed or not as valuable to the company? The July cuts had an impact on these financials, but the latest cuts won’t be felt until next quarter, and severance costs will impact the bottom line.