The Energy Crisis in Europe Caused Microsoft to Report its Weakest Revenue Growth in Five Years

Manage HR Magazine | Wednesday, November 02, 2022

High energy costs in Europe are hitting the bottom line of the world’s biggest tech companies.

FREMONT, CA: Microsoft (NASDAQ: MSFT), a multinational electronics developer, released its first fiscal quarter's revenue figures last week. The business reported USD 50.1 billion in revenue, an 11 per cent gain over the same time the previous year, marking the company's slowest growth since 2017.

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Microsoft attributed the decline in revenue to declining personal computer sales and a strong dollar, but the company's chief financial officer, Amy Hood, said that another issue, tight Europe's natural gas supply and escalating energy crisis, is also beginning to eat into the company's profitability.

During an earnings conference call, Hood stated that the business anticipates USD 800 million in higher-than-expected energy costs for this fiscal year, the first quarter of which ended in September.

As the region struggles with one of its biggest energy crises in decades, she said that the losses would be mostly localised in Europe, according to quotes obtained by Bloomberg.

Cloud Computing Takes a Hit

As Europe's data centres and cloud computing sectors begin to crumble under the continent's energy crisis, Microsoft's losses are predominantly concentrated in the company's energy-intensive cloud computing services.

Azure, Microsoft's main cloud platform, is at the forefront of the company's cloud computing offerings. Azure, which operates with more than 200 data centres worldwide, is no different from other cloud computing platforms because it needs multiple data processing centres spread out geographically to support its servers.

However, powering and cooling the servers they host requires enormous energy, and Microsoft's finances are starting to suffer as a result.

According to Hood, only part of the USD 800 million in energy expenditures was incurred in the first quarter; the majority will be dispersed across the remaining three quarters of the fiscal year. Hood predicted losses of about USD 250 million for the final three quarters of the 2023 fiscal year, resulting in a point reduction in Microsoft's operating margins for the full year. According to Hood, high energy costs have already impacted Azure's operational margins.

In recent months, data centres have come under fire from European authorities as a result of demands from governments for firms to cut back on their energy use. European officials have prioritised reducing power use and filling energy storage to prepare for the winter months when energy demand tends to peak.

Fears of energy rationing have been generated by Europe's constrained energy supply, which is mostly the result of Russian energy corporations restricting natural gas exports to the continent in reaction to Western sanctions. While the gas supply in Europe has been sufficient to get through the winter, the worldwide supply is still tight. Therefore, governments have taken care to minimise their energy use whenever feasible.

For instance, a recent regulation in Germany mandates the creation and implementation of new energy management and efficiency plans for major data centres, and new facilities must find a mechanism to recycle at least 40 per cent of the waste heat generated by servers.

According to a recent analysis by the European Commission, data centres accounted for 2.7 per cent of the electricity demand in the European Union in 2018. The report also predicted that their energy usage will increase by 200 per cent between 2020 and 2030.

Because of the increasingly unfriendly political climate, some technology corporations have abandoned plans for new data centres in Europe. As a result of persistent opposition from local authorities, Facebook's parent company Meta declared in July that it would not proceed with a significant project in the Netherlands. Additionally, after the Irish government put a moratorium on new data centre projects due to energy concerns in August, Microsoft and Amazon[1]  postponed their plans to build data centres there.

Microsoft executives emphasised the results that cloud-based services are still the way of the future, especially in Europe, which is suffering from a severe energy shortage, as these services might eventually help businesses increase their energy efficiency.

Moving to the cloud is the best method to protect against energy expenses and become more energy-efficient, Microsoft CEO Satya Nadella stated on the call.

However, the environment in Europe is expected to be hostile for some time, as the continent's energy crisis and fears over energy security may persist much longer than just this winter due to the present shortage of global energy supplies.

 

 

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