A slowing PC market weighs down Microsoft

The devices market had been gradually slowing down since March. The PC segment was expected to decline by about 7% as of the end of June, according to some estimates. And by the end of September, the PC segment, which includes desktops, laptops, tablets and Chromebooks, has further declined. 

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Worldwide PC shipments totalled 68 million units in the third quarter of 2022, a 19.5% drop compared to the same period last year, according to estimates by Gartner. The drop in shipment comes against the backdrop of high inflation fanned by worries of a global slowdown, which has forced businesses and consumers to pull back spending on laptops and desktops. 

A strong dollar has added to the squeeze, which has weighed down on earnings of global multi-national corporations. Microsoft, which earns half of its revenue from outside the United States, may have to change its annual outlook as the Windows software maker is set to post its slowest quarterly revenue growth in over five years on Tuesday. 

The company’s popular software licenses make about a tenth of its revenue and slowdown in PC market could hurt its sales. While a dent in sale of software licenses may be offset by the Redmond-based company’s cloud service business, but the difference may not be much as signs of a slowdown in cloud adoption are starting to emerge.      

According to one estimate, total revenues at the top 100 software firms are estimated to grow slowly in 2023, comparted to 2021. Software firms are the biggest customers of cloud vendors and their business growth is seen as proxy for the cloud services sector.

These factors have led to several brokerages lowering their price target on Microsoft in October, and the company’s stock has also declined by over 20% in 2022.