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Microsoft Corp. (MSFT - Analyst Report) recently announced the expansion of its data center that lies about seven miles west of Des Moines in Iowa.

The software maker will invest approximately $678 million for the expansion. Microsoft opened its data center in Iowa in 2009 to support its cloud computing services platform, Windows Azure. The expansion is expected to create 29 new jobs. Microsoft in turn will be eligible to receive incentives of up to $20 million in tax credits.

Windows Azure is Microsoft’s cloud computing platform for building, deploying and managing applications and services through a global network of managed datacenters. Windows Azure core offerings include Media Services, Mobile Services, Cloud Services, Virtual Machines, Websites and Big Data. It competes with Amazon's (AMZN - Analyst Report) cloud computing platform Amazon Web Services (AWS) and OpSource Cloud Computing Services.

Investments in states like Iowa makes sense as they offer tax incentives, low-cost power, cheap land and good weather conditions. All these factors attract IT majors to make low cost investments.

Recently in April, Facebook (FB - Analyst Report) announced that it will open its fourth data center in Altoona, Iowa. Google has also been present in Iowa since 2007 and invested more than $1.0 billion in the state.

The need for data center expansion is rising due to the growing demand for cloud computing and the ever-increasing needs of Internet users. Market research firm, IDC predicts that the cloud market will jump 130%, reaching $43.0 billion in 2016.

Further, Gartner predicts that around $677.0 billion would be spent on cloud services within the 2013–2016 timeframe. Microsoft, with its solid portfolio should be able to tap this opportunity.

The company is expanding Windows Azure internationally and investing in technology infrastructure to support rapid growth. Microsoft remains one of the best positioned software vendors, given the wide range of its products, emerging markets strength, continued technology deployment at data centers and growth in cloud computing.

Currently, just like other PC makers, Microsoft is also battling the slump in the PC market caused by the sluggish economy. In addition, the popularity of smartphones and tablets from Apple and Google have been cannibalizing its core PC market. Therefore, it is important for the company to focus more on emerging segments such as mobile hardware and the cloud.

Currently, Microsoft has a Zacks Rank #4 (Sell).

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