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Microsoft sales spike on soaring Windows demand

By David Goldman, staff writer

NEW YORK (CNNMoney.com) -- Microsoft Corp. on Thursday reported that its quarterly sales soared, thanks to gains across all of its key product lines.

Driven by strong Windows 7 sales and an improving PC market, the Redmond, Wash., software giant reported net income that rose 48%, to $4.5 billion, in its fiscal fourth-quarter. Microsoft's per-share earnings were 51 cents, ahead of the 46 cents per share forecast from analysts polled by Thomson Reuters.

Sales rose 22% to a record $16 billion, topping analysts' forecasts of $15.3 billion.

That was enough to keep Microsoft ahead of Apple in the closely watched sales race between the one-time arch rivals. Apple (AAPL, Fortune 500) on Tuesday reported quarterly sales of $15.7 billion, a new record for the company.

"We saw strong sales execution across all of our businesses, particularly in the enterprise with Windows 7 and Office 2010," Kevin Turner, Microsoft's chief operating officer, said in a prepared statement. "We look forward to continuing our product momentum this fall with the upcoming launches of Windows Phone 7 and Xbox Kinect."

Microsoft's revenue grew in every one of its major divisions over the same period in 2009. Windows sales jumped 44% over last year, when Windows 7 had not yet been released and the oft-maligned Windows Vista was set to soon be retired. Microsoft Office sales rose 15%, and server revenue was up 14%.

Revenue in the company's entertainment division, which includes Xbox and Zune, soared 27% over last year, while the online services division that is mainly comprised of search engine Bing rose 13%.

But those products continue to hemorrhage money: Bing lost a whopping $696 million in the quarter and the Xbox division finished $172 million in the hole. Both of those losses were larger than last year's.

Though Xbox has been a popular hit with gamers, the other products in Microsoft's entertainment division haven't fared nearly as well. Zune sales are slow and the Kin -- Microsoft's smartphone for tweens -- was discontinued after just seven weeks on the market.

Bing's market share has grown by more than 50% since it debuted in June 2009, according to online data tracker comScore. Though Bing appears to have eaten away at some of search leader Google's (GOOG, Fortune 500) market share, it has also eaten up some of Yahoo's share.

That's a worry for Microsoft, since the company is working to implement a revenue-sharing search partnership with Yahoo (YHOO, Fortune 500). The deal will eventually place Bing's search engine technology behind searches on Yahoo's site -- and drive a percentage of that ad revenue back to Microsoft.

Shares of Microsoft (MSFT, Fortune 500) were essentially flat after hours.

Still, the quarter's strongest divisions delivered a solid quarter for the company. Microsoft's finished its fiscal 2010 year, which ended in June, with $62.5 billion in annual sales -- its highest ever and a 7% gain from 2009. The company also remains wildly profitable, with nearly $19 billion in earnings in fiscal 2010. That means a staggering 30% of the money it takes in from sales goes straight to profit.

But some of those profits were reached thanks to Microsoft's strenuous cost-cutting efforts over the past several quarters. The company laid off 5,300 employees between January 2009 and June 2010. To top of page

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