Microsoft issued a disappointing revenue forecast for the current quarter in its earnings call on Tuesday, causing a reverse in the stock price after the shares initially rallied on better-than-expected earnings for the December quarter.

The technology company saw a dropoff in business at the end of 2022 in core Windows and Office areas, CEO Satya Nadella told analysts on a conference call.

Here’s how the company did:

• Earnings: $2.32 per share, adjusted, vs. $2.29 per share as expected by analysts, according to Refinitiv.
• Revenue: $52.75 billion, vs. $52.94 billion as expected by analysts, according to Refinitiv.

Microsoft called for $50.5 billion to $51.5 billion in fiscal third quarter revenue, which works out to 3% implied growth, while analysts polled by Refinitiv had expected $52.43 billion. Amy Hood, the company’s finance chief, said the PC market will contract again, which should lead to a roughly 17% year-over-year decline in the More Personal Computing business segment that features Windows.

For the fiscal second quarter, total revenue increased by 2% year over year in the quarter ending Dec. 31, the slowest rate since 2016, according to a statement. Net income fell to $16.43 billion from $18.77 billion in the year-ago quarter. The company took a $1.2 billion charge in the quarter in connection with its decision to cut 10,000 jobs, revise its hardware lineup and consolidate leases. The charge includes $800 million in employee severance costs.

Business weakened in December, including in growth of consumption of Azure cloud services, Amy Hood, Microsoft’s finance chief, said on the call. During that month growth in new business was lower than management had expected for Microsoft 365 productivity software subscriptions, Windows Commercial products and Enterprise Mobility and Security offerings, Hood said.

“In our commercial business we expect business trends that we saw at the end of December to continue into Q3,” she said.

Revenue in Microsoft’s Intelligent Cloud segment amounted to $21.51 billion, up 18% and slightly above the $21.44 billion consensus among analysts polled by StreetAccount. The unit includes the Azure public cloud, Windows Server, SQL Server, Nuance and Enterprise Services. Revenue from Azure and other cloud services, which Microsoft does not report in dollars, grew by 31%, slightly above the estimate of just under 31% that analysts polled by CNBC and StreetAccount had expected. In the previous quarter, the category grew 35%.

Customers are looking to save money through optimization of existing workloads, and they’re also being more cautious about new workloads, Nadella said.

Hood said she expects Azure cloud growth to slow again in the fiscal third quarter. She said in December it was in the mid-30% range in constant currency in December, and she sees it going down 4-5 percentage points in the fiscal third quarter. Amazon shares rose as much as 3% in after-hours trading immediately following Microsoft’s announcement, before going negative.

The Productivity and Business Processes segment, containing Microsoft 365 (formerly known as Office 365), LinkedIn and Dynamics, delivered $17 billion in revenue, up 7% and more than the StreetAccount consensus of $16.79 billion. The Teams communication app now has over 280 million monthly active users, CEO Satya Nadella said.

The More Personal Computing segment featuring Windows, Xbox, Surface and search advertising contributed $14.24 billion, representing a revenue decline of 19%. Sales of Windows licenses to device makers declined some 39% year over year, decelerating from a decline of 15% in the fiscal first quarter. Technology industry researcher Gartner estimated that during the fourth quarter of 2022 the PC business had its slowest growth since the company started keeping track of the market in the mid-1990s.

Hood said its Surface group dealt with execution challenges in the quarter, during which the company introduced the Surface Pro 9.

Nadella said Microsoft pulled in over $20 billion in security revenue in 2022, up about 33% from 2021, when the growth rate was about 45%.

Microsoft’s report kicks off earnings season for the mega-cap tech companies with the Nasdaq coming off its worst year since 2008 and its first four-quarter slump since the dot-com crash. Along with Microsoft’s layoffs, Amazon, Alphabet and Meta all announced significant job cuts recently after they juiced hiring during the Covid pandemic and extended bull market in tech. Meta is scheduled to report results next Wednesday, followed a day later by Alphabet, Amazon and Apple.

The decision to reduce headcount at Microsoft “shows a commitment to margin defense despite top-line shakiness,” analysts at Raymond James wrote in a note to clients Monday. They recommend buying Microsoft shares.

In the quarter, the U.S. Federal Trade Commission sued Microsoft to block its pending $69 billion acquisition of game publisher Activision Blizzard, while the U.S. Defense Department awarded Microsoft and three other companies a cloud contract worth up to $9 billion combined. “We are continuing to engage with regulators reviewing the transaction and are working toward closing it in fiscal year 2023, subject to obtaining required regulatory approvals and satisfaction of other customary closing conditions,” Microsoft said in a filing.

Excluding the after-hours move, Microsoft stock is flat so far this year, while the S&P 500 stock index is up 4%.

Correction: This story has been updated to reflect that Microsoft’s conference call with analysts will start Tuesday at 5:30 p.m. ET. A previous version gave an incorrect time.

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