Microsoft Cuts Forecast and Warns of Forex Hit

ByEdward Thompson

Jun 2, 2022

On Thursday, Microsoft cut back its forecast of both profit and revenue for the fourth quarter. This makes it the latest company in the United States to warn of consequences that could occur because of a stronger US dollar. In the last year, the dollar’s price has gone up by almost 14% because of the increasing geopolitical tensions and the hawkish stance of the Federal Reserve. The greenback has climbed against a basket of other currencies and this has prompted numerous companies to temper their expectations for the coming year, including those like Proctor & Gamble and Coca-Cola Co.

A stronger dollar has a negative impact on the profits of companies that operate internationally, as this requires conversion of foreign currencies into the greenback. Market experts said that software companies, such as Microsoft, have sprawling operations outside the United States and their decision to be transparency about the impact of the rising dollar shows their prudence in staying ahead. Half of Microsoft’s revenue is generated outside the US and the company decided to cut down the forecast for its three segments, which are personal computing, cloud services and Windows products as well. There has also been an increase seen in corporate hedging.

Due to rising inflation, currency fluctuations are to be expected and this has driven companies to take measures for safeguarding their profits. While companies are known to protect themselves against any potential movement in the forex markets, the urgency that can be seen these days has come after years of muted volatility in currencies. During this time, currencies did not have a significant impact on the profits and revenues of most companies. As far as Microsoft is concerned, it had previously forecasted revenues from the quarter between $52.40 billion and $53.20 billion.

However, now it has adjusted this forecast and expects the figure to be somewhere between $51.94 billion and $52.74 billion. The profit view had previously been about $2.28 to $2.35 for every share and has now been adjusted to $2.24 or $2.32. According to the data from Refinitiv, analysts believe that a revenue of about $52.87 billion can give profits of around $.2.33 per share. Back in April, the company had forecasted a growth in revenue in double-digits for the upcoming fiscal year. This was primarily because of the increase in demand for its cloud services and office software, as economies are reopening once more.

This means that businesses are now moving towards a hybrid model in which staff is permitted to work alternatively from home and the office. Later in the day, an executive of Microsoft will be speaking at Jefferies Software Conference. After the announcement, the company based in Redmond, Washington, saw its share price go down. They had fallen by almost 2.3% and were last trading at a value of $266.1. The rising inflation and the volatility of the forex market has had an impact on global economies and the United States is also dealing with the consequences.

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