Microsoft lowered its profit and revenue forecasts for the fourth quarter on Thursday, becoming the latest US business to warn about the impact of a higher dollar.
The dollar has gained 14 percent versus a basket of currencies in the last year due to a hawkish Federal Reserve and increased geopolitical concerns, pushing corporations like Coca-Cola and Procter & Gamble to modify their expectations for the rest of the year.
The profitability of corporations with large overseas operations that convert foreign currencies into dollars are often harmed by a stronger greenback.
Microsoft, like many other software businesses, has major operations outside of the United States, and I believe it is important for the company to get ahead of (market) expectations and be clear about currency consequences,” said Steve Koenig, managing director at SMBC Nikko Securities.
Microsoft cut its revenue projection for all three sectors, which include Windows products, cloud services, and personal computing, as it receives nearly half of its income from outside the United States.
As more corporations try to protect their earnings from the impact of currency changes in the face of rising inflation, corporate hedging activity has surged.
Companies frequently take steps to safeguard themselves from unanticipated currency movements, but the urgency has increased following years of low forex volatility, during which currency swings had little influence on profitability.
Revenue for the quarter is expected to be between $51.94 billion (A$71.4 billion) and US$52.74 billion, down from a range of US$52.40 billion to US$53.20 billion previously.
Due to demand for its office software and cloud services as economies reopen and businesses reopen, the company forecasted double-digit revenue growth for the upcoming fiscal year in April.