Tech company earnings reports reveal a rising risk for any business reliant on advertising revenue

Published Tue, Oct 26 20219:23 PM EDTUpdated Wed, Oct 27 20218:17 AM EDT

Microsoft is no stranger to supply chain challenges in its hardware business, but it's now warning for the first time about their impact on an unlikely area: advertising. The company became the latest to warn that big customers could restrain their advertising spending as they deal with supply chain hiccups. The risk has emerged swiftly, even though there have been shortages of everything from computer chips to paint for several months. Last week, Snap CEO Evan Spiegel said advertising partners are confronting a variety of supply chain challenges. On Monday, Facebook finance chief David Wehner said advertisers are supply-constrained. And on Tuesday, Google chief business officer Philipp Schindler said that, with supply issues hitting automakers, the search company's reported an impact on vehicles in the automotive category of its business. Microsoft CFO told analysts on the company's fiscal first-quarter earnings call Tuesday to "watch the advertising market through the quarter because, obviously, their willingness to spend is entirely connected to their supply as well." Hood said that, in the current quarter, she expects demand to exceed supply in Xbox consoles, Surface devices and in PCs, where Microsoft gets revenue from sales of Windows to device makers. Executives have pointed to supply limitations in those areas in the past, but they had not issued a warning on advertising before. Advertising isn't the most critical market for Microsoft, the world's second-most valuable company behind Apple . It commands a lead in computer operating systems and productivity software, and its fast-growing Azure public cloud is second only to Amazon Web Services. Still, the Microsoft advertising business, including the Bing search engine, is sizable. Microsoft's search and news advertising revenue in the third quarter grew 37% to $2.7 billion, representing almost 6% of Microsoft's revenue, and that doesn't include the marketing component of Microsoft's LinkedIn business social network. The unit has rebounded after declining last year as the coronavirus caused advertisers to pull back on spending. The area is also generally a source of reliable income for Microsoft investors to count on. The Bing search engine became profitable in 2015 . Microsoft does not disclose margins for its search and news advertising category. Even if Bing isn't the size of Google, it plays a distinct role in technology. Bing is "arguably the only alternative to the Google search monopoly," Blair Abernethy and Derek Hernandez of Rosenblatt Securities, with a buy rating on Microsoft stock, wrote in a note to clients Monday. WATCH: Logitech CEO explains how supply issues could impact holiday shopping

Microsoft CEO Satya Nadella speaks at Microsoft Developer Day in Singapore on May 27, 2016.

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