Microsoft blames strong dollar for cuts to forecasts

Microsoft has cut its revenue and profit outlook for the current quarter citing currency fluctuations, becoming the biggest US company to downgrade its figures because of the strength of the dollar.

The second-biggest listed company in the US said it expected revenue of between $51.9 billion (€49.2 billion) and $52.7 billion in its fourth fiscal quarter ending June 30th, compared with previous forecasts of $52.4 billion to $53.2 billion.

Diluted earnings are now expected to be between $2.24 and $2.32 a share, down from the previous forecast of $2.28 to $2.35.

The adjustments, announced in a securities filing on Thursday, were in response to the latest exchange rate movements. Microsoft’s shares recovered from an initial drop of as much as 3.8 per cent to end the day 0.8 per cent higher.

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In late April, Microsoft reported forecast-beating third-quarter results and an optimistic outlook for the current quarter, dispelling some of the recent macroeconomic worries that have hit tech stocks.

But the latest update highlights the currency risks for companies with significant overseas earnings, as policymakers around the world grapple with how to tackle rising prices and the possibility of recession.

The dollar has strengthened this year, boosted by interest rate rises in the US to fight historically high inflation and a flight to safety among investors facing global turmoil. The dollar index, measuring the greenback against a basket of peer currencies, has risen about 6 per cent in the past six months.

A strong dollar increases the price of US goods abroad, which can weaken demand. It can also reduce the value of revenues for US companies operating internationally. In its third quarter, Microsoft generated 49.8 per cent of total revenue outside the US, according to Refinitiv data.

Microsoft on Thursday said its gross margin was expected to be between $35.45 billion and $36.05 billion, down from previous estimates of $35.8 billion to $36.4 billion, because of currency movements.

Several other tech companies have recently issued warnings about the impact of the strong dollar and deteriorating macroeconomic environment.

Salesforce this week blamed the strong dollar for its decision to cut its sales outlook for the year, and Snap, the parent company of Snapchat, released a profit warning last month, having warned in April of a difficult outlook. – Copyright the Financial Times Limited 2022