Microsoft profit surges on Windows 7 momentum

By Hibah Yousuf, staff reporter


NEW YORK (CNNMoney.com) -- Microsoft posted a quarterly profit Thursday that surged from a year earlier and topped Wall Street's forecasts, thanks to momentum from Windows 7, the operating system released in October.

Microsoft's net income rose 35% from a year earlier to $4 billion, or 45 cents per share, in the three months ended March 31. Analysts polled by Thomson Reuters were expecting earnings of 42 cents per share.

Sales increased 6% to a $14.5 billion, rising for the second consecutive period after three quarters of decline. The results included the deferral of $305 million of revenue related to a promotional program for Microsoft Office 2010, which is due out in June. Analysts were expecting sales of $14.4 billion.

"Windows 7 continues to be a growth engine, but we also saw strong growth in other areas like Bing search, Xbox Live and our emerging clouds services," Peter Klein, Microsoft's chief financial officer, said in a prepared statement.

Sales in the operating system division, which includes Windows 7, rose 28% during the quarter and profit increased by 34%. More than 10% of the world's PCs now run Windows 7, Microsoft said.

Consumer spending drove most of Microsoft's growth during the quarter. But during a conference call with investors, Klein said corporate technology spending is also beginning to return.

"The business PC refresh has started," Klein said. Windows 7 licenses for businesses rose 15% during the quarter, he said.

With most of corporate PC upgrade cycle still ahead, Windows 7 should continue to pay off for Microsoft, according to Canaccord Adams analyst Peter Misek.

Revenue from Microsoft's online services business division, which includes MSN and its search engine Bing, rose almost 12%, and its profit soared more than 73%. The company's search deal with Yahoo (YHOO, Fortune 500), which aims to challenge Google's (GOOG, Fortune 500) dominance in online search, launched during the quarter. Misek expects that to push earnings higher in upcoming quarters.

Under the 10-year agreement, both search engines maintain their own branding but Yahoo is responsible for acquiring premium advertisers. In turn, Microsoft pays Yahoo 88% of the revenue it gets from searches on Yahoo's sites.

Sales from the Redmond, Wash.-based company's entertainment devices segment, which includes the Xbox and Zune HD, rose 2%. After losing $41 million in the same period last year, the division this time posted a $165 million profit.

Revenue and profit from the company's server unit both rose more than 2%.

Sales in Microsoft's business division, which include Office products, fell 6%, and the unit's profit dipped 5%. But the division will see a boost following the release of Office 2010 in June, Klein said.

Shares of Microsoft (MSFT, Fortune 500) dipped 3% in after-hours trading, afterrising 0.2% in regular hours.  To top of page

Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Index Last Change % Change
Dow 16,479.85 -83.45 -0.50%
Nasdaq 4,336.57 -33.20 -0.76%
S&P 500 1,921.29 -9.38 -0.49%
Treasuries 2.49 -0.06 -2.46%
Data as of 12:18pm ET
Company Price Change % Change
Bank of America Corp... 14.91 -0.34 -2.23%
Apple Inc 95.53 -0.07 -0.07%
Facebook Inc 71.69 -0.96 -1.32%
General Electric Co 25.16 0.01 0.04%
Progressive Corp 23.34 -0.10 -0.43%
Data as of 12:03pm ET

Sections

Malaysia Airlines was in major trouble even before the twin disasters of Flight 370 and Flight 17 claimed the lives of 537 people. More

The U.S. economy added 209,000 jobs in July. But that's lower than the number of jobs added In June ... and it was not as strong as what economists expected. More

Terrell White has had a profit-sharing plan for his employees since 1981, believing that if the staff isn't happy, guests won't be either. More

Get paid to go on vacation, receive a couple of bonus weeks at the end of the year or take as much time as you need. Such vacation policies are more than a dream at some small, niche -- and often tech-based -- companies. More

Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.