MSFT Q2/2023 Earnings Release | Hacker News Reader

MSFT Q2/2023 Earnings Release

microsoft.com

66 pointsckastner60 comments

The layoffs make sense now, at this rate Microsoft only makes a yearly profit enough to buy a tiny country.

Oh my god they wrote that document in an older version of Word (I guess?) and transferred it into a website. The source code of this document is god awful. I know nobody cares, but as a website maker dude I do - and this is hurting.

Have a nice screenie of a piece of the source: https://jasper.monster/sharex/firefox_fQy122RwpB.png

Maybe it's an advertisement for Word, this is a Microsoft earnings report after all. /s

> The company took a $1.2 billion charge in the quarter in connection with its decision to cut 10,000 jobs, revise its hardware lineup and consolidate leases. The charge includes $800 million in employee severance costs.

How long does it take to recoup $800m in severance from 10k employees?

$80K per employee?? That seems a little steep to me. I have received some severance packages during my career, but they were never that sweet.

If that’s commensurate with their overall compensation, I can see why MS needed to trim their workforce.

What's "scary" is if you look at their headcount on a graph, they are still very high compared to their historical headcounts.

https://www.macrotrends.net/stocks/charts/MSFT/microsoft/num...

Doesn't this make one wonder "are more layoffs coming"/needed?

We were all criticizing their board in the comments for laying off 10k or whatever it was. Maybe we should be thanking them that it wasn't more? Not saying I think this, just... not an "unfathomable" argument.

I had no idea they had gotten so big. Roughly 200k employees puts them on par with the size of Bank of America.

Given the still strong performance this might be it. The cuts were across teams, but some teams, such as HoloLens and 343i seemed to be hit harder. They also need to clear way for bringing on board over 10k new employees from Activision.

It includes 2+ months of salary for each employee, six months of stock awards, six months of healthcare and probably tax etc.

Really depends on who was let go, since salaries are on such a curve. Back of the envelope guess-timate though, that's 80k per person, and if we use the mean total comp of 191.8k (an SDE II from levels.fyi), that's 80/191.8*12months = ~5months?

Though this is potentially really wrong because it includes stock which isn't really prorated like that, and doesn't include payroll tax and benefits they won't have to pay.

I wish I had some insight as to whether they are planning to lay off another 10,000 employees within the next 6-12 months.

A huge portion of those laid off were not SDEs, which skews this I think.

Could skew it the other way, right? As in, directors + managers + VPs make $200k-$300k on the low-ish?

Benefits costs add up quite significantly, not just the pay. Pay is made up of base pay + bonus + stock. The stock based comp is weird accounting tricks too where you dilute existing shareholders to pay employees. The direct cost to company there is buy backs but I don't think total buybacks == dilution through SBC.

So you have to take into account just the base pay + benefits.

I have heard that an employee's cost to the company is twice the base salary. I have no idea of this is true.

Surprised they didn't split out the concert with Sting that Satya had promptly before laying off 10k people.

xbox hw/gaming: -13%

This one is the most embarrassing of all, i wonder how different that would have been if they had a handheld instead of 2 console with 2 different performance profile, that seems redundant

When you look at Nintendo, it's night and day the amount of console they are about to sell, more than both Sony/MS combined each quarter

A pipeline of high quality, broad interest games is still something Xbox is lacking. It's taking quite a while for the Xbox Game Studios acquisitions to bear fruit.

Hence a handheld would have served well for small hit games, including backward compatibility with XONE/360, it could have also been a catalyzer for their cloud/online services and a bridge with PC gaming (they own windows), Nintendo is profiting from it since most of their catalog (except for their 1st party) comes from PC ports

That's exactly Valve's strategy with the Steam Deck, they are capitalizing on it, and it seems to be a good idea, that's unfortunate for xbox, maybe for the next gen

The Steam Deck relieves so much pressure on Xbox and Sony. All they have to do is play nice with Proton and they are handheld ready. If the Deck fails, there's no hit to their bottom line. Sony has has fully embraced it with their push to PC.

This coupled with AMD's FSR 2/2.1 I'd argue. FSR can dramatically lower energy requirements while still maintaining acceptable image quality, and is critical for most of the Sony games to run at reasonable frame rates on the Deck.

Anecdotal but I used to be a die hard Xbox guy. After the 360 I got really lost on the naming scheme. I want to buy an Xbox but I have no idea which one is the latest. Is it the Xbox Series X One? Or the Xbox X Series X? no fucking clue

I know, I can do like 5 minutes of research and find out. But I don't care THAT much. If I knew it was called an Xbox 5 I could use that time researching on just going to Amazon and buying it instead.

Also, my friends have all gotten older and they're no longer on an Xbox and are using Nintendo switch/phones as their casual gaming device.

I'm right there with you - not many of my friends (we're in our young-mid 30s) game that much, and when they do it's pretty casual. I have an Xbox One and I have the game pass, but to be honest it's mainly for when my friends come over and we play FIFA, Madden, etc... - something pretty casual. I cannot for the life of me remember the last time I played a non-multiplayer game.

Everyone who still likes gaming and is into playing with their SO, their kids, or relatives that I know plays on Switch, which to be fair is an awesome device.

We're in the Switch boat with a 9-year old, and even though I sometimes look at my friends and their PS5s/latest Xboxes with envy it always comes down to the unsavory catalog of games. The violence/sex/other kinds of mature content is a big drawback to families like us (even if you don't buy those kinds of games, the visibility is still too high).

Check out their surface device lineup. It is equally as confusing! Unified branding in Microsoft products seem to be an area they could improve on.

For me it was the way they messed up the Indies, killing XBox Live Arcade, XNA, UWP,...

The whole ID@XBOX is trying to recover from that.

I wonder if that accounts for the Activision purchase?

If it's just purely revenue, yeah, that's ugly. Sad because I got the Xbox Game Pass maybe 3 months ago and while I rarely game, I've really enjoyed it - the fact that I can just hop on and play whatever I want in the cloud is really cool. The fact that it comes bundled with all EA games too is great. Will suck when they inevitably have to bump up prices, because right now it's the best value in gaming hands down.

Activision purchase hasn't closed yet.

They lose money on gamepads as well

The issue for Xbox is they need to push more subs to game pass, but they haven’t had the tent pole titles to support that consumer behavior. If they want subscribers they need 3-4 big games each year to come exclusively to game pass. They have struggled to release games and when they do release they are often in a less than stellar state.

>Windows OEM revenue decreased 39%

If Windows OEM had a 1:1 direct relationship with Windows PC shipment, that is a ~40% decline. I am assuming this is Q2 YoY.

If we look back at Earnings Release FY22 Q2 [1], Windows OEM revenue increased 25%. So while FY22 Q2 growth was an outliner and hard to sustain, the 40% decline is still very bad.

This also explains a lot of of pressure and negative talk from PC components OEMs like DRAM and SSD, to vendors like Dell and HP. It will be even worst if Smartphone sales dont pick up some of the spill overs. We are looking at another possibility of DRAM and NAND trading at negative COGS.

We should have a better understanding of the market once Apple publish their Data in a few more days.

[1] https://www.microsoft.com/en-us/Investor/earnings/FY-2022-Q2...

They only went up due to covid and online working.

Point is, the time to replace computers every two years has gone by, and even smartphones are on that point (most countries aren't that much into 2 year replacement phone contracts).

I doubt very much that most consumers will bother to buy new computers to replace their Windows 8.x and 10 installations.

They will keep using what they have, even without updates, until they eventually break down beyond having the local PC store repair them, and then they will buy a new computer.

Same applies to everyone using smartphones on pre-paid cards.

Realistically, besides the enterprise customers, it's mostly gamers still buying Windows PCs (most of them build it themselves out of parts and likely reusing an upgrade-able Windows 8+ key, instead of buying a prebuilt with OEM Windows). I guess they were trying to get into education as well (Chromebook compete), but with kids back in person that boat has sailed.

In another thread recently I was wondering if Microsoft are the most diversified of the current big players. What do you reckon?

Look at these business sector names:

Azure + other cloud services

Dynamics products + cloud services

Office 365 commercial

Office commercial products + cloud services

Office consumer products + cloud services

Search + news advertising

Excluding traffic acquisition costs

Server products + cloud services

Windows commercial products + cloud services

Windows OEM

Xbox content + services

From here: https://www.cnbc.com/2023/01/24/microsoft-msft-earnings-q2-2...

Pretty diverse. Gaming, corporation/office stuff. What could they expand into next 3-5 years other than OpenAI? Hardware? They already failed at Zune/I doubt they want to make a phone.

> The devices are manufactured by original equipment manufacturers, including Pegatron, and are designed to be premium devices that set examples to Windows OEMs

Pegatron makes the Surface apparently. Not like Microsoft can cut Dell out of the loop and make their own laptop (not that I think that's high margin either...)

Plus social networking/LinkedIn

Consumer, SMB, enterprise, cloud, hardware, gaming... They have it all.

one thing I applaud MS for, even though I hate the OS they forced on the world:

being able to grow revenues from acquired companies.

> being able to grow revenues from acquired companies.

correction:

being able to inflate and cover up their losses by acquiring already successful companies

Doesn’t matter what you call it, the system works apparently. Not many companies can say that.

It is important when you want to draw conclusions; you should use factual data, not your emotions

Your response appears to be much more emotionally driven than articbull’s. He is simply acknowledging their business model and the fact it is clearly a system that works, you’re assigning it some kind of value.

I read it again and i can see that, you are right, that wasn't the intent, i felt the comment was trying to downplay losses, so i felt the need to remind the differences, even more so since they just announced laying off 10k employees, including destroying the entire AR/VR/MR team

Yeah sorry I didn't mean it to come across that way!

I see their core business as changing, and they're being resourceful in leveraging acquisitions to continue to deliver shareholder value into the future.

I think this is a strategy that many companies have historically executed on very badly.

For every success story (Mojang) there are 3-4 horror stories (Fast, Yammer, Nokia, aQuantive, etc.)

I do feel like some of those companies were doomed before microsoft was involved at least

Is aQuantive still around? Atlas was sold to Facebook in 2013, and re-released in 2014.

https://www.cnbc.com/2014/09/23/facebook-to-introduce-new-ad...

Not as a entity. MS broke it up and sold off all the parts. Razorfish is still sort of around: https://www.razorfish.com/

I think Razorfish was spun out before the acquisition.

Skype

As ex-Nokia, on that case they did it to themselves.

First for the kind of management we had regarding Symbian vs Linux, angering the Symbian developer community, always changing the development stack, deciding to bring a Microsoft person which decided to go all in on Windows Phone, when the R&D culture was pretty much anti-MS during those days (Symbian/Linux), and having a contract clause for a nice bonus if Elop managed to sell the company.

Windows OEM revenue decreased 39%

Ouch

Up 4% after hours.

edit: well that didn’t last

Can't wait to see how the rest of the market reacts as this release is digested.

Apple should release on February 2nd as per https://www.nasdaq.com/market-activity/stocks/aapl/earnings

Apple + Microsoft + Amazon + Google Class A + Google Class C are ~17.5% of the S&P500 by weight as per https://www.slickcharts.com/sp500

Not anymore. The table turns quickly.

Fell due to weak guidance for next quarter.

  Revenue was $52.7 billion and increased 2%

  Operating income was $20.4 billion GAAP and $21.6 billion non-GAAP, and decreased 8% and 3%, respectively

  Net income was $16.4 billion GAAP and $17.4 billion non-GAAP, and decreased 12% and 7%, respectively

  Diluted earnings per share was $2.20 GAAP and $2.32 non-GAAP, and decreased 11% and 6%, respectively

Earnings: $2.32 per share, adjusted, vs. $2.29 per share as expected by analysts, according to Refinitiv.

Revenue: $52.75 billion, vs. $52.94 billion as expected by analysts, according to Refinitiv.

https://www.cnbc.com/2023/01/24/microsoft-msft-earnings-q2-2...

I really can't tell how to judge this. What will this cause reaction wise in terms of "what does this signal for the other top S&P players"?

Is it really a "beat" if guidance was lowered? Did they mention anything about forward guidance? Is that what matters more?

Beat references results relative to expectations for the quarter.

But yes, guidance generally matters more than the actual quarterly results. Which is why MSFT is flat now after giving weak guidance on their call.

Of course, it’d be kind of silly to not sandbag your guidance in this environment. There’s very little to gain by setting expectations high

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