Despite PC shipments riding higher than they had been in pre-pandemic levels, the cliff they dropped off over the past couple of quarters was too steep to overcome for Microsoft’s bottom line.

The start of the fiscal year 2023 is a relatively bumpy one as company investors navigate Microsoft earning $17.6B in net income off of $50.1B in revenue. For the quarter, Microsoft’s revenue is up almost 11% but net income decreased by 14% (down 8% in constant currency).

AMD and Intel sent out warning flares of an imminent jolt to the PC market earlier this month as they lowered their projections for shipments ahead of their own earnings calls this week and Microsoft is also signaling to that softer demand as partial reason for its relatively poor showing this quarter.

“Windows OEM revenue declined 15% with continued deterioration in the PC market, partially offset by 5 points of positive impact from the prior year Windows 11 revenue deferral.”

So, while things could have looked a bit worse this quarter, Microsoft as a whole still has highlights this earnings report that include Xbox hardware being up 13% for the quarter alongside gaming revenue growth of 4%. Unfortunately, Xbox content services lagged behind with a 3% decline as Microsoft cites the lack of engagement hours and monetization from 1st party content, all of which was offset by the growth of Xbox Game Pass.

Search was another positive highlight during the earnings report with Search and News Advertising revenue growing by 16% and device revenue showing a modest 2% gain in the quarter when no new Surface devices were available for purchase.

Per usual, Microsoft’s Server Products and Cloud services revenue grew by 22%. Azure and other cloud services tacked on 35% revenue growth for the quarter that Microsoft is attributing to its “consumption-based services.”

Prior to the rebrand, Office 365 Commerical products and cloud services showed 7% revenue growth while Microsoft’s LinkedIn purchase continues to pay dividends with its own 17 revenue growth driven by “Talent Solutions.” Microsoft 365 is now sitting on 61.4 million Consumer subscribers representing a 13% growth and expected to increase further as the company shifts its naming convention to incorporate Office 365 seats as well.

Business Highlights

Productivity and Business Processes was $16.5 billion

• Office Commercial products and cloud services revenue increased 7%
• Office Consumer products and cloud services revenue increased 7% (up 11% in constant currency) and Microsoft 365 Consumer subscribers grew to 61.3 million
• LinkedIn revenue increased 17%
• Dynamics products and cloud services revenue increased 15% driven by Dynamics 365 revenue growth of 24%

Revenue in Intelligent Cloud was $20.3 billion and increased 20%

• Server products and cloud services revenue increased 22% driven by Azure and other cloud services revenue growth of 35% (up 42% in constant currency)

Revenue in More Personal Computing was $13.3 billion

with the following business highlights:

• Windows OEM revenue decreased 15%
• Windows Commercial products and cloud services revenue increased 8%
• Xbox content and services revenue decreased 3%
• Search and news advertising revenue excluding traffic acquisition costs increased 16%
• Devices revenue increased 2%

Microsoft returned $9.7 billion to shareholders in the form of share repurchases and dividends in the first quarter of fiscal year 2023, a decrease of 11% compared to the first quarter of fiscal year 2022.

The company warns of the typical industry trade winds, competition, COVID-19 related setbacks to manufacturing, shipping and logistical issues.  As for other risks and uncertainties, we’ll have to wait until the investors call later today to see how the company handles questions about layoffs, an impending recession and its looming $68B Activision acquisition.

Xbox revenues postCheck out our for more on the latest numbers for Xbox and gaming.