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Video Games Boost Microsoft, Surface Sales Surge & Demand For Teams & Office 365 Take Off

The COVID-19 pandemic has been good for Microsoft with the big US software Company extending its pandemic-fuelled run of strong quarterly earnings with record purchases from stay-at-home consumers and businesses moving to cloud based computing.

The big software Company is now worth over A $2 trillion making it only second behind Apple.

Videogame sales have boomed along with demand for Office 365 and notebooks. The Company has also witnessed massive growth across its professional and consumer businesses with a driven rapid uptake of its cloud-computing services with their stock up 50% during the past year.

Microsoft company posted a 19% increase in its fiscal third-quarter sales to $41.7 billion, generating net income of $15.5 billion for the January through March period. The results beat Wall Street expectations, according to FactSet.

Despite the record result concerns are mounting as to what will happen post the COVID-19 pandemic as consumers return to working from offices.

“There are worries about the sustainability of Microsoft post-pandemic,” said Rishi Jaluria, an analyst for investment research firm D.A. Davidson & Co.

Microsoft’s hardware sales were affected by chip shortages, said Kyle Vikström, a director of investor relations at the company. The impact was chiefly on its Xbox gaming consoles and Surface laptops, she said.

The company’s videogaming activity has been particularly hot during the pandemic. Xbox content and services revenue increased 34% in the latest quarter aided by the recent release of two new consoles, Xbox Series X and S. Xbox hardware revenue more than tripled from the previous year.

Revenue from Surface laptops, which have been popular with people working and learning from home, rose 12% from a year ago.

Strong demand for cloud services late last year helped Microsoft reverse a trend of a gradually declining pace of growth. The company said sales linked to Azure cloud services advanced 50% in the most recent quarter, on par with the December quarter.

Azure which delivers the Office 365 suite of Microsoft tools is a larger revenue source for the company than its Windows operating system.

Prior to COVID-19 Azure growth had been slowing as the business gained scale. Microsoft sees a return to that pattern as likely.

“We’re getting into the law of large numbers” on Azure’s growth, said Microsoft’s Ms. Vikström. “We expect over time that it’s going to decelerate as numbers get bigger.”

Microsoft also was able to popularize during the pandemic its Teams workplace collaboration suite that offers features competing with companies such as Zoom Video Communications.

Teams’ usage rose from 20 million active users before the pandemic in November 2019 to 115 million in October 2020, the last time the company updated its usage figures.

Microsoft has been looking for ways to underpin its efforts to reach a larger number of users through some high-profile acquisitions. Earlier this month, it acquired artificial-intelligence company Nuance Communications Inc. for $16 billion in an effort to boost its access to healthcare customers, where Nuance has a dominant position in voice-transcription software for doctors.

Microsoft also benefited from the broad strength in the advertising market. Its search advertising business was up 17%, and ad-spending also helped lift revenue at LinkedIn, the professional social-media network, by 25%.

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