Microsoft Weathers Deteriorating PC Market Amid Gloomy Semiconductor Sales Forecast

Backlit keyboard
Following its latest earnings report, shares of Microsoft stock jumped by as much as 5 percent in pre-market trading leading up to today's opening bell. This despite Microsoft attributing a negative impact on Windows OEM revenue, which fell 2 percent in the fourth quarter of fiscal year 2022, to what it deemed a "deteriorating PC market" last month.

Microsoft also pointed the finger at extended production shutdowns in China. Despite it all, Microsoft saw its quarterly revenue grow 12 percent year-over-year to $51.9 billion, en route to a $16.7 billion profit, which is 2 percent higher than the same quarter a year ago.

"In a dynamic environment we saw strong demand, took share, and increased customer commitment to our cloud platform. Commercial bookings grew 25 percent and Microsoft Cloud revenue was $25 billion, up 28 percnet year over year," said Amy Hood, executive vice president and chief financial officer of Microsoft. "As we begin a new fiscal year, we remain committed to balancing operational discipline with continued investments in key strategic areas to drive future growth."

Gartner's revnue growth chart
Microsoft's comment on a deteriorating PC market lines up with a report released today by Gartner, in which the market research firm projects a massive slowdown in semiconductor growth. According to Gartner, semiconductor revenue is on track to grow just 7.4 percent in 2022, a negative adjustment from the previous quarter's forecast of 13.6 percent, and compared to last year's 26.3 percent revenue growth.

"We are already seeing weakness in semiconductor end markets, especially those exposed to consumer spending. Rising inflation, taxes and interest rates, together with higher energy and fuel costs, are putting pressure on consumer disposable income. This is affecting spending on electronic products such as PCs and smartphones," said Richard Gordon, practice vice president at Gartner.

Earlier this month, the research firm predicted that worldwide PC shipments would drop by 9.5 percent in 2022 for the same reasons, which if true would mark the steepest decline of all device segments this year. And in today's report, Gartner says semiconductor revenue from PCs is on track to decline 5.4 percent.

It sounds like an awful lot of gloom and doom, though it's perhaps not as dire as it appears at first glance. Gordon noted that the down cycle we're in "is not new, and has happened many times before." He also pointed to the data center market as a resilient force, where semiconductor revenue is expected to rise 20 percent this year.

For consumers, there are some exciting chip launches on the horizon. Intel is close to launching its 13th Gen Raptor Lake CPUs, AMD will be announcing its Zen 4 lineup before the end of the year, and both AMD and NVIDIA have a new round of GPUs waiting in the wings. As for Microsoft, during an earnings call to discuss its fourth quarter earnings, Hood said the company anticipates "double digit revenue and operating income growth in constant currency and US dollars" for its fiscal 2023