Microsoft leveled its forecasts for the current quarter, signaling that the growth of the US dollar will eat more revenue than previously expected, and highlighting the threat of inflation and tighter economic policies for the industry, which has already suffered from widespread market defeat.
Shares fell about 1.8 percent in the middle of the morning on Thursday after Microsoft said it now expects earnings per share of at least $ 2.24 from a previous forecast of at least $ 2.28. The company sees currency fluctuations in the fourth quarter will affect revenue of $ 460 million, bringing profits down to $ 51.94 billion.
Microsoft has published new instructions in the securities bid, “to help investors understand the impact of adverse exchange rate movements in the fourth quarter of fiscal year 2022 since the forward-looking instructions submitted on April 26.” The company from Redmond, Washington, received about half of the $ 168 billion in revenue received in the 2021 fiscal year from abroad.
In its latest earnings report, released in April, Microsoft said the impact of currency fluctuations had led to declining revenues and profits, although both were still up from a year earlier. CFO Amy Hood said at the time that the company expects the foreign currency to “reduce the company’s overall revenue growth by about 2 points”.
Microsoft’s revised forecast will be a recurring theme for many major software companies, as most of them generate more than one-third of their sales outside the United States, “said Anurag Rana, an analyst at Bloomberg Intelligence. Indeed, earlier this week Salesforce Inc. also pointed to a strong dollar in lowering sales forecasts for the year. The business software company has doubled the effect it expects from a stronger dollar to $ 600 million.
The rate of interest rate hikes in the US compared to other developed economies and the war in Ukraine have contributed to the growth of demand for the dollar, which has increased by more than 7% since the beginning of the year before highlighting some of these achievements recently. The rise of the dollar led to the fall of the euro, the British pound and the Japanese yen.
A strong dollar benefits American consumers because it makes goods from other countries cheaper. But it could hurt U.S. producers by making the products they sell overseas more expensive, and that could mean U.S. businesses earn less dollars on their exports.
Finance Minister Janet Yellen said at a recent press briefing that the administration is adhering to a market-determined exchange rate, even though it has acknowledged that currency profits are a concern in other countries. The rise of the dollar is helping US politicians trying to curb inflation, and Federal Reserve Chairman Jerome Powell has specifically backed a tightening of US financial conditions, part of which is strengthening the dollar.
Rising inflation and the Fed’s efforts to contain it, coupled with challenges to the global supply chain, Covid-19 and slowing economic growth, have impacted major technology stocks this year. The unprecedented coincidence of bad news has introduced a dose of reality into the prospects of an industry that has benefited from two decades of low interest rates, making technology companies attractive investments that have attracted capital flows from public markets.
The tech S&P 500 has lost about 14% of its value this year. Among the most affected were Amazon.com Inc. and Tesla Inc., both fell more than 25%, and Meta Platforms Inc., which fell 42%.