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Microsoft CEO predicts 80% growth opportunity for tech

Company’s first quarter 2020 results shows strong demand for cloud services and CEO Satya Nadella believes IT modernisation will drive tech spending

Microsoft has reported revenue of $37.2bn for the first quarter of 2020, an increase of 12% over last year, driven by demand for its commercial cloud.

The company reported that revenue in its commercial cloud business grew by 31% to $15.2bn. It said commercial products and cloud services revenue increased by 9%, driven by Office 365 Commercial revenue growth of 21%. It also posted 38% growth in Dynamics 365 and 48% revenue growth in the Azure public cloud.

However, given that demand for commercial PCs is falling and the decline of Windows 7 upgrades, Microsoft posted a fall of 5% in revenue for Windows.

Microsoft CEO Satya Nadella said: “The next decade of economic performance for every business will be defined by the speed of their digital transformation. We are innovating across our full modern tech stack to help our customers in every industry improve time to value, increase agility, and reduce costs.”

In a transcript of the earnings call posted on the Seeking Alpha financial blogging site, Nadella discussed the growth potential for IT over the next 10 years. Assuming 5% of GDP is currently spent on technology, Nadella said: “We think it will double in the next 10 years. And if anything, this pandemic perhaps has accelerated that doubling. And in that context, what’s the large, the most secular need? It’s the need for distributed cloud infrastructure.”

He said this demand will come from the need to modernise. According to Nadella, only one-fifth of organisations have moved to such an infrastructure, which means that more than 80% need to move.

During the earnings call, Nadella said he was “very excited” about the Teams collaboration tool, which he said was not like anything else the company had ever developed. For example, Nadella said PayPal is using Power BI within Teams to expand access to data insights.

He mentioned a number of other roll-outs, including how Teams is supporting 270,000 employees at PepsiCo and the use of Teams at the University of Nottingham to support remote learning.

Read more about Microsoft Teams

  • Meetings in Microsoft Teams are vital to support remote collaboration. Learn what role Teams meetings should play in your organisation and where the platform must improve.
  • Organisations weighing Microsoft Teams vs Zoom conferencing must consider the long-term licensing costs, collaboration features and UX of the services.

Nadella said: “It’s literally like a shell and has a platform effect because it is meetings, it’s chat, it’s collaboration.” On top of this, business process applications can also be integrated into Teams, he said.

“That scaffolding richness literally makes it a very robust platform. And so we are seeing significant growth. We talked about the usage growth, but we’re also seeing significant growth of usage across all these modalities inside of Teams.”

Nadella positioned the Teams platform as the next growth opportunity for Microsoft, saying: “Teams is bolstering all-up growth. Meetings are important but they’re transactional. Work happens before meetings, during meetings and after meetings. So that ability to have the workflow completely stitched together is where Microsoft 365 really stands out.”

He said the company was experiencing a significant amount of usage growth where Teams reinforces Microsoft 365. According to Nadella, this growth is likely to be more than the company has seen previously with demand for individual tools.

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