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Microsoft’s latest results focus on combating inflation

With prices set to rise, CEO Satya Nadella used the Q1 2022 earnings call to discuss the deflationary effect of digitisation

Microsoft has reported revenue of $43bn for its first quarter of 2022, a 22% increase on the previous year’s first-quarter results, driven by growth in cloud adoption.

It reported revenue in its Productivity and Business Processes unit of $15.0bn, an increase of 22%. The company said Office Commercial products and cloud services revenue had increased by 18%, Dynamics products and cloud services revenue had risen by 31% and its Intelligent Cloud business generated revenue of  $17.0bn, 31% up on the same quarter last year.

The company has positioned digitisation as something businesses can use to compensate for rises in inflation.

“Digital technology is a deflationary force in an inflationary economy,” said Satya Nadella, chairman and chief executive officer of Microsoft. “Businesses small and large can improve productivity and the affordability of their products and services by building tech intensity. The Microsoft Cloud delivers the end-to-end platforms and tools that organisations need to navigate this time of transition and change.”

In a transcript of the earning call, posted on the Seeking Alpha site, Nadella was asked about how digitisation is helping businesses to compensate for price increases. He said: “In an inflationary environment, the first place any business should go to is how to really ensure that they’re able to get productivity gains. And even dealing with constraints, for example, if you have supply chain constraints, one of the things you want to do is run your factories at the efficient frontier – that means things like digital twins and simulation.”

According to Nadella, such technologies can help business leaders ensure that every production run has the least amount of wastage.

With greater adoption of video conferencing and collaboration tools, Nadella said Microsoft had seen Teams winning business against traditional telephony and VoIP services. “Calls originating from Teams chats increased by 50% this quarter compared to a year ago,” he said.

The company has also developed Operator Connect, which enables organisations to bring their existing service directly into Teams. As well as replacing existing telephony services, Microsoft has been focusing on making Teams a platform for collaboration applications, said Nadella.

The company reported revenue of $13.3bn in its More Personal Computing business, a 12% increase on Q1 2021. It said licences from Windows OEM revenue had increased by 10% and Windows Commercial products and cloud services revenue was up 12%.

Asked during the earnings call about the state of the Windows PC market, Microsoft chief financial officer Amy Hood said the nature of hybrid work was changing how people and businesses purchased new PCs. However, although the PC market grew during the quarter, Hood said it had been constrained by supply chain issues. 

“The market grew this quarter, but it was constrained by supply,” she said. “I believe Q2 will also be a strong-demand quarter that is constrained by supply. But even with that, we see a growing market.”

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