Microsoft warns of cloud computing slowdown
Company strikes a cautious note as its customers "optimize" their spending to save money
Ibrahim Al-TarikMay 9, 2025
Microsoft on Tuesday warned of a significant slowdown in its cloud computing business as major customers hold back on spending amid the slowing economy. The company's shares fell 7 percent in after-hours trading.
The cautious comments made during a conference call with Wall Street analysts dampened hopes that continued solid demand for cloud services would offset the PC market slump and help the world's largest software company ease broader pressures on IT to withstand the market.
Microsoft warned that revenue growth for Azure, the cloud computing platform that has become one of the company's key drivers, would slow by 5 percentage points this quarter excluding the impact of currency fluctuations. At 42 percent, growth in the quarter ended September was already one point below analysts' expectations and four points below that of the previous three months.
Chief Executive Satya Nadella blamed the slowdown in cloud business on efforts by customers to optimize spending to save money as the economic outlook darkens. Microsoft also said the higher energy costs of running its massive cloud data centers will weigh on the company's profit margins, adding $800 million to costs this year.
With revenue from software sales to PC makers set to fall more than 30 percent this quarter, Microsoft forecast revenue of between $52.35 billion and $53.36 billion, $3.2 billion below Wall Street forecasts at the center the span lies.
Analysts had previously reported that Microsoft largely weathered the economic slowdown in the three months to the end of September. Revenue rose 11 percent to $50.1 billion, slightly ahead of Wall Street's expectations, while earnings per share of $2.35 were 4 cents higher than expected.
The numbers reflect the sharp decline in sales of Microsoft's traditional, highly profitable PC software, which squeezed the company's profit margins.
Sales of software to PC manufacturers fell 15 percent, taking total revenue from Microsoft's More Personal Computing division to $14.3 billion, up 3 percent at constant exchange rates. According to Gartner, PC shipments fell 19.5 percent in the third quarter, the sharpest decline since the market research firm began monitoring the PC market in the mid-1990s.
Although Microsoft was able to more than offset lost PC software sales with a 31% increase in revenue from its commercial cloud business, the cloud business's lower profitability weighed on margins. Had it not been for an accounting change that extended the useful life of data center equipment and thereby reduced depreciation costs, Microsoft's gross profit margin would have decreased 3 percentage points for the quarter.
Revenue for the intelligent cloud division, which includes Azure, rose 26 percent to $20.3 billion in the most recent quarter, excluding the impact of currency fluctuations. Revenue from the Productivity and Business Processes division, to which Office belongs, rose 15 percent to $16.5 billion.
The sharp rise in the dollar exchange rate depressed sales by 2.3 billion dollars, according to Microsoft. The latest results were helped by a price hike earlier in the year for the Office 365 productivity suite, as well as the completion of its acquisition of Nuance, which had nearly $350 million in revenue for the same period last year.
