Microsoft's Profits Surge as Enterprise Clients Work From Home

CIOReviewIndia Team | Thursday, 30 April 2020, 13:40 IST

Microsofts Profits Surge as Enterprise Clients Work From Home

The American multinational technology company Microsoft Corp on Wednesday beat Wall Street sales and profit expectations, which was powered by sharp demand for its Teams chat and online meeting app and Xbox gaming services, as a result of people around the globe working and playing from home because of the novel COVID-19 pandemic.

The company’s shares, increased over 12 per cent this year, rose about 5 per cent in extending trading.

For the fourth quarter of the fiscal year, Microsoft provided business-unit forecasts which were below analyst estimates, predicting tough times for LinkedIn and a few small-business software sales.

“Ultimately, Microsoft is not immune from what is going on broadly in the world in terms of GDP growth,” Nadella said on a conference call with investors.

However, results benefited from sales of Microsoft’s Windows operating system and Surface hardware devices are due to the up-gradation of personal computers by users who work or study from home. Microsoft also quoted the all-time-high engagement on its Xbox Live gaming service, with 19 million active users.

“The biggest missed opportunity was in Surface, where demand was huge, the channel inventory was depleted, and supply chain constraints reduced finished goods output,” said Moor Insights & Strategy analyst Patrick Moorhead. “I believe the company could have easily sold 15-20 per cent more if available.”

Nadella on a conference call said that “Microsoft has also benefitted from strong demand for its Teams collaboration software, and now has 75 million users and competes with Zoom Video Communications Inc and Slack Technologies Inc.”

The demand influx drained Microsoft’s data centres, compelling it to restrict and limit new cloud customers’ usage and prioritize healthcare and government users.

“Some of the increased Teams usages came from subscribers with access to the software as part of a broader package and turned it on for the first time. “In other cases, Microsoft offered Teams in a free trial to large customers,” said Amy Hood, Microsoft Chief Financial Officer.

 “In those instances, you also won’t see revenue, but seeing great usage is terrific for us long term if people want to convert that to a paying seat,” Hood added. While I’m excited about the long-term potential for revenue, you won’t see it in this (fiscal third) quarter, or even in Q4. It’s more about people being more and more engaged with Microsoft products.”

The demand for cloud services helped the sales during the third quarter.

“Despite the slowed growth, (Azure) operates at approximately 10 times the scale of Google (by annual revenues) and has seen better enterprise adoption so far,” said Daniel Elman, an analyst at Nucleus Research.

Microsoft Corp also stated that revenue for its “commercial cloud,” an amalgamation of Azure and the cloud-based versions of software such as Office, reached up to USD 13.3 Billion. “Our capital expenditure was USD 3.9 billion, up from USD 3.4 billion a year earlier,” it added.

“However, supply chain constraints owing to the coronavirus pandemic had delayed some spending to build Azure data centres, which will likely be higher next quarter as the company works to catch up,” affirmed Hood.

According to IBES data from Refinitiv, revenue in the Intelligent Cloud segment that includes Azure, rose 27 per cent to USD 12.28 billion, beating analysts’ consensus estimate of USD 11.87 billion and the net income of Microsoft rose to USD 10.75 billion. 

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