Softchoice Corp T.SFTC

TD

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Microsoft Delivers a Q4 Miss, but Provides a Solid F2023 Outlook

Event

Yesterday after market close, Microsoft reported its Q4/F22 results.

Impact: NEUTRAL read-through for Softchoice and Converge

Microsoft's Q4/F22 falls short; offers solid outlook. Q4/F22 revenue of US $51.9bln (up 16% y/y in cc), operating income of US$20.5bln, and Adjusted EPS of US$2.23 missed consensus at US$52.4bln, US$21.1bln, and US$2.29, respectively.

Key highlights include:

• Server products and cloud services revenue grew 26% y/y in cc. Azure and other cloud services revenue grew 46% y/y in cc, in line with the 45-49% growth range over the last two years.

• Office Commercial products and cloud services grew 13% y/y in cc, with Office 365 commercial revenue up 19% y/y in cc.

• Record commercial bookings (up 35% y/y in cc), driven by large Azure and Microsoft 365 contracts.

• Microsoft anticipates double-digit revenue and operating income growth in F2023. For Q1/F23, Microsoft expects solid but moderating growth in Productivity and Business Processes (includes Office/Microsoft 365) and Intelligent Cloud (includes Azure).

  GCP growth remains healthy. Alphabet also reported its Q2/F22 results yesterday. Google Cloud revenues grew 36% y/y, down from 44% last quarter, partly due to a tough y/y comp and FX. GCP growth again exceeded Google Cloud's growth.

  Good quarter from IBM. Last Monday, IBM reported Q2/F22 revenue of US $15.5bln, up 16% y/y in cc. Software revenue growth remained solid (up 12% y/y in cc), but Red Hat growth slowed (up 17% y/y in cc vs. 21% in the last two quarters). Infrastructure revenue rebounded (up 25% y/y in cc), aided by the z16 launch. F2022 revenue guidance was maintained.

  Our take. We believe the deceleration in cloud growth this quarter is worth monitoring, with Microsoft expecting a continued moderation in Azure growth in Q1/ F23, given its large install base. Given Softchoice's strong competitive position, we believe it can continue to gain market share to help mitigate a potential slowdown in cloud growth from its current lofty levels.

  Despite slowing growth this quarter, we believe that key tech vendors' Q2/C22 results and outlook reflect robust customer demand. However, we remain wary of potential near- to medium-term headwinds, including a more challenging macro environment, IT supply-chain issues, and FX.