3 things to watch for when Microsoft reports earnings

Analysts expect Microsoft to report quarterly profits of $13.4 billion, up 24%. Sales are expected to grow 17% to $41 billion. 

Microsoft has managed to weather the COVID pandemic better than many other companies, with its Azure cloud-computing business growing quickly amid a fierce rivalry with Amazon Web Services and Google Cloud.  

Here are three things to watch out for when Microsoft reports earnings on Tuesday:

The PC market rebounds

Microsoft’s personal computing business unit, which includes Windows, Xbox hardware and related software, Surface computers, and Bing search, may have a big quarter, thanks to a booming PC market.

Last week, Intel CEO Pat Gelsinger told analysts that the semiconductor giant expects a banner year for PC sales, with this year “shaping up to be the largest PC market ever.” He added that there are “over 400 million PCs running Windows 10 that are over four years old today,” and that consumers are looking to buy new computers to replace their older devices.   

If Gelsinger’s observation pans out, then both Intel and Microsoft could benefit with increased PC and related Windows sales. A rosy outlook for PC sales may also mean that Microsoft’s Surface computer business could benefit.

Meeting the demand of the new Xbox consoles

Although Microsoft’s Xbox Series X and Series S video game consoles have been on sale since November, consumers are having problems buying them. 

Microsoft, along with rival Sony, has been unable to keep up with the demand due partly to a global shortage of the available computer chips required to build the devices. Online scammers have also flooded retail websites with automated bots that are quicker than humans at buying the consoles. 

Microsoft executives may give an update on whether they expect the shortage of Xbox consoles to alleviate. In January, Microsoft head of investor relations Mike Spencer told the New York Times that “supply is likely to be constrained at least through June.” 

Talk about acquisitions 

Expect Microsoft CEO Satya Nadella to talk about the pending $19.7 billion acquisition of Nuance, which creates tools for doctors to write notes using their voices, among other health care–related software. Microsoft, along with other enterprise technology rivals like AWS, are betting that the health care industry will become a major customer for their cloud services. 

Analysts expect Microsoft to benefit from Nuance’s technology and wealth of health care data, a necessity for Microsoft to improve its A.I. that translates health care–specific lingo, among other uses.

Nadella is unlikely to discuss the company’s failed bid to buy the hot chatting service Discord, which reportedly rejected Microsoft’s $12 billion takeover bid.