As the pandemic raged through the U.S., Microsoft’s business continued chugging ahead and beat Wall Street expectations for the last three months of 2020, powered by ongoing demand for its workplace software and cloud computing services as people worked from home.

The company (Nasdaq: MFST) on Tuesday reported fiscal second-quarter profit of $15.5 billion, up 33% from the same period last year.

In a statement Tuesday, CEO Satya Nadella called it “the dawn of a second wave of digital transformation sweeping every company and every industry.”

“What we have witnessed over the past year is the dawn of a second wave of digital transformation sweeping every company and every industry,” he explained “Building their own digital capability is the new currency driving every organization’s resilience and growth. Microsoft is powering this shift with the world’s largest and most comprehensive cloud platform.”

Net income of $2.03 per share beat Wall Street expectations.

The software maker posted revenue of $43.1 billion in the October-December period, up 17% from last year and also beating forecasts.

Analysts surveyed by FactSet were expecting Microsoft to earn $1.64 per share on revenue of $40.2 billion for the fiscal quarter.

“Accelerating demand for our differentiated offerings drove commercial cloud revenue to $16.7 billion, up 34% year over year,” said Amy Hood, executive vice president and chief financial officer of Microsoft. “We continue to benefit from our investments in strategic, high-growth areas.”

Business Highlights

Revenue in Productivity and Business Processes was $13.4 billion and increased 13% (up 11% in constant currency), with the following business highlights:

  • Office Commercial products and cloud services revenue increased 11% (up 9% in constant currency) driven by Office 365 Commercial revenue growth of 21% (up 20% in constant currency)
  • Office Consumer products and cloud services revenue increased 7% (up 6% in constant currency) and Microsoft 365 Consumer subscribers increased to 47.5 million
  • LinkedIn revenue increased 23% (up 22% in constant currency)
  • Dynamics products and cloud services revenue increased 21% (up 18% in constant currency) driven by Dynamics 365 revenue growth of 39% (up 37% in constant currency)

Revenue in Intelligent Cloud was $14.6 billion and increased 23% (up 22% in constant currency), with the following business highlights:

  • Server products and cloud services revenue increased 26% (up 24% in constant currency) driven by Azure revenue growth of 50% (up 48% in constant currency)

Revenue in More Personal Computing was $15.1 billion and increased 14% (up 13% in constant currency), with the following business highlights:

  • Windows OEM revenue increased 1%
  • Windows Commercial products and cloud services revenue increased 10% (up 8% in constant currency)
  • Xbox content and services revenue increased 40% (up 38% in constant currency)
  • Surface revenue increased 3% (up 1%in constant currency)
  • Search advertising revenue excluding traffic acquisition costs increased 2% (up 1% in constant currency)

Source: Microsoft

The coronavirus pandemic sparked a massive shift to the cloud and to Microsoft that won’t likely be reversed once the crisis is over, said Daniel Elman, an analyst at Nucleus Research. Consumer-facing businesses were forced to adapt to new ways of engaging with their customers digitally, and many of those businesses looked to Microsoft for the apps and services to ease that shift.

“So many people are already familiar with the Microsoft user interface that it’s a comfortable option,” Elman said.

Revenue from Microsoft’s productivity segment, which includes its Office suite of workplace products such as email, grew by 13% in the quarter ending in December, to $13.4 billion. Its cloud computing business segment grew 23% to $14.6 billion.

The most visible sign of that growth has been the rise of Microsoft’s workplace communications tool Teams, which has vied with Zoom and Slack as a must-have service for remote workers in the pandemic. Software pioneer Salesforce, already a rival for Microsoft in selling customer relations software, announced in December it was buying Slack in a $27.7 billion deal that could give Microsoft tougher competition when it closes later this year.

Microsoft’s personal computing business segment also grew by 14% to $15.1 billion. Some of that stemmed from holiday gadget sales and Windows licenses for new computers sought by homebound workers, but the biggest boost to the segment was from the release of Microsoft’s new Xbox Series X console. Xbox gaming revenue grew 40% over the same time last year.

“In the near term it’s more people at home playing games,” said Logan Purk, an analyst at Edward Jones who said the Xbox gains contributed to a “near-perfect” quarter for Microsoft. A shortage of consoles ahead of the holidays could also sustain some of that growth in the months ahead because of pent-up demand, he said.

Elman said Microsoft was helped by having fewer supply chain problems than Sony’s new PlayStation 5. In 2020, both companies introduced their first new systems since 2013.

“I don’t think they’re going to unseat Sony and become the No. 1 console again, but it will do a good job of closing the gap,” Elman said.