Microsoft Shifts Cloud Profits, Alters Productivity Unit Reporting

AFP/APP

San Francisco: Microsoft announced on Wednesday a revision in its cloud computing unit’s revenue forecast, reallocating a portion of the earnings to its “productivity” software business.

This accounting adjustment comes amid investor concerns over whether the extensive investments in artificial intelligence by Microsoft and other tech giants will ultimately benefit their bottom lines.

According to Microsoft, the change aims to better align financial reporting with the company’s operations, particularly regarding cloud services associated with its business computing unit.

The company now anticipates Intelligent Cloud revenue to range between $23.80 billion and $24.10 billion for the current quarter, running from July through September. This marks a significant drop from the previous forecast of $28.6 billion to $28.9 billion.

Conversely, the revenue forecast for Microsoft’s “productivity and business” division, which includes subscriptions to Microsoft 365 office software (such as Word and Excel) and an expanding suite of generative AI tools, has been increased to approximately $28 billion, up from the earlier estimate of $20.3 billion to $20.6 billion.

The reallocation has also resulted in reduced revenue expectations for Microsoft’s personal computing unit.

The Intelligent Cloud segment, one of Microsoft’s fastest-growing and most profitable areas, has been a major revenue driver, thanks to the rapid adoption of Azure and other cloud services. 

This segment competes with cloud platforms such as Amazon Web Services, Google Cloud, and IBM Cloud, all of which are incorporating generative AI services to attract customers and boost revenue.

As a leading player in the race to develop artificial intelligence systems, Microsoft has invested billions into the technology, betting on its potential payoff.

The company has been quick to integrate generative AI across its products and has invested $13 billion in OpenAI, the startup behind ChatGPT.

Despite the revenue update, Microsoft’s shares remained largely unchanged in after-hours trading. Last month, the company reported strong quarterly earnings, but its shares dipped as growth in its crucial cloud computing unit fell short of expectations.

Although cloud computing has consistently driven significant earnings, signs of a slowdown in its growth have made investors cautious.