Microsoft earnings are down 14%, Windows experiences low PC sales.

FILE PHOTO: A Microsoft logo is seen in Los Angeles, California, U.S. June 14, 2016. REUTERS/Lucy Nicholson

Microsoft revealed a 14% drop in earnings for the July-September quarter versus the same period last year, owing to a weak personal computer market impacting its Windows business.

Despite undershooting last year’s results, the company announced quarterly net income of $17.6 billion, or $2.35 per share, which nevertheless slightly beat expectations from Wall Street.

The Redmond, Washington-based software firm reported revenue of $50.1 billion in the third quarter, up 11% from the previous year and exceeding expectations.

Analysts expected Microsoft to garner $2.31 per share on $49.7 billion in earnings for the quarter.

Given economic uncertainties such as inflation, Microsoft’s personal computing business, focused on its Windows software, was extensively anticipated to suffer. Furthermore, many consumers purchased new devices during the pandemic, helping to maintain demand.

The company earns licensing fees from PC makers who include the Microsoft Windows operating system in their products. According to Microsoft, revenue from these licenses fell 15% in the third quarter.

According to market researcher Gartner, worldwide shipments of personal computers fell nearly 20% in the third quarter compared to the same period last year, the steepest drop since the company started monitoring the PC market in the mid-1990s. According to Gartner, a disheartening back-to-school sales season for new computers also made a significant contribution to a 4th successive quarter of year-over-year decline.

In after-hours trading Tuesday, Microsoft shares fell upwards of 6%. On a conference call with investors, Microsoft Chief Financial Officer Amy Hood stated that a number of the negative variables impacting the previous quarter could persist in the near future.

She predicted that net headcount growth would be “minimal” in the current quarter, referring to recent layoffs and new hires in the previous year. Microsoft compensated for some of its Windows-related losses by leveraging the resilience of its cloud-computing services offered to large businesses as well as other organizations.

Earnings from that segment increased 20% year on year to $20.3 billion, making it Microsoft’s major source of sales and growth during the period.

However, growth in the company’s flagship Azure cloud computing service was lower than expected, owing in part to what Hood characterized as an ongoing sharp rise in the cost of energy required to run powerful data centers.

The second-largest business division, comprised of productivity-related software like the Office suite of work products, increased 9% in earnings to $16.5 billion.