By Aaron Tilley

Microsoft Corp. is poised to post record quarterly sales underpinned by pandemic-fueled demand for videogaming and accelerated adoption of its cloud-computing services.

The software giant's fiscal second-quarter earnings due Tuesday afternoon will reflect a period when demand for the latest versions of its Xbox videogame consoles has outstripped supply. Wall Street expects Microsoft to post $40.2 billion in sales, the highest for any three-month period and up around 9% from the prior-year quarter. Net income is expected to jump by $1 billion to $12.6 billion, according to FactSet.

The remote work era has been a boon for Microsoft. In addition to its videogaming and cloud-computing products, the company has seen strong sales for its Surface laptops as people bought devices to work remotely and enable distance learning. And use of Microsoft's Teams workplace collaboration software that includes text chat and videoconferencing, and has been a priority for Chief Executive Satya Nadella, has jumped during the pandemic. Microsoft shares have risen more than 37% over the past year.

Mr. Nadella's bet on cloud computing has been pivotal to Microsoft's multiyear run of year-over-year sales increases. Sales for the company's Azure cloud-services have expanded rapidly however, before the pandemic hit, the pace of growth was slowing as the business gained scale. The remote work era arrested that decline. Azure sales increased 48% in the September quarter, up from 47% expansion in the prior three-month period.

Azure became a bigger source of revenue for Microsoft than its Windows operating system licenses in the September quarter, said Brent Bracelin, an analyst at Piper Sandler. Microsoft doesn't break out Azure revenue, but the company is the world's second-largest cloud-computing vendor after Amazon.com Inc.

The role of videogaming in Microsoft's fortunes also has increased under Mr. Nadella, in part fueled by acquisitions. The company last year bought ZeniMax Media Inc., the parent company of the popular Doom videogame franchise, for $7.5 billion. Gaming revenue grew 30% in the first quarter of this financial year and is expected to enjoy another bump in the most recent three-month period, aided by the November release of two new gaming consoles, Xbox Series X and S, to battle Sony Corp.'s PlayStation 5.

For Microsoft, the consoles, a relatively low margin business, are less important to its bottom line than hooking gamers on subscription services for its games. But the company last week misstepped when it tried to push through a price hike for some of those services. Customers revolted, and the software giant reversed course hours later.

The business software market, core to Microsoft, also is becoming more heated. Business software vendor Salesforce.com Inc. last month said it would spend around $27.7 billion to buy Slack Technologies Inc., maker of a popular chat-based workplace collaboration platform. With Slack, Salesforce is looking to more aggressively go after a core business of Microsoft. The deal is expected to close in the coming months.

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Write to Aaron Tilley at aaron.tilley@wsj.com

(END) Dow Jones Newswires

01-26-21 0814ET