Microsoft sales rise 25% to $16 billion

By Julianne Pepitone, staff reporter


NEW YORK (CNNMoney.com) -- Microsoft's first-quarter sales of $16.2 billion rose 25% from last year, thanks to strong showings from Office 2010, Windows 7 and Xbox 360.

Microsoft's net income jumped 51% from last year, to $5.41 billion, or 62 cents per share. The company easily topped analyst estimates for both sales and earnings.

Some of the gain came from Microsoft's move to exclude sales of $1.5 billion from last year's results because of a Windows 7 upgrade program. The company waited until after Windows 7 shipped to recognize revenue from those sales. Still, factoring out the deferral's effects, Microsoft had double-digit sales and income growth.

All of Microsoft's business units reported year-over-year growth. However, its loss widened in its perennially money-losing online division, which lost $560 million in the quarter ended Sept. 30.

Revenue from Microsoft Office rose more than 15% compared to last year, thanks to Microsoft Office 2010's first full quarter on the market. Sales of Xbox 360 video game consoles grew 38% and outsold every competing console in the U.S. for each of the past four months, Microsoft said.

PC sales were also strong, with revenue rising 10% from software sales through Microsoft's resellers.

Last week, Apple (AAPL, Fortune 500) reported an all-time sales record of $20 billion, on the back of its popular gadget lineup. It was the first time Apple's quarterly sales topped Microsoft's.

Windows Phone 7: In a conference call with analysts after the earnings release, Microsoft executives touted its new Windows 7 operating system for mobile phones. The OS is deeply integrated with social media and other Microsoft products ,including the Office suite.

"We've made really exciting progress with the Windows Phone 7 abroad, and we expect that to continue when we launch in the U.S. on Nov. 8," said Bill Koefoed, general manager of the company's investor relations.

Earlier this month, Microsoft CEO Steve Ballmer said that Windows Phone 7 smartphones would be available in the United States on AT&T's (T, Fortune 500) network. Microsoft also announced partnerships with Samsung, LG and HTC, which will make devices to run the new smartphone software. All three phones will cost $199.99.

The Windows Phone 7 lineup will eventually include nine phone models available in 30 countries.

Online services: Revenue from Microsoft's online services business division, which includes MSN and its search engine Bing, rose 8%.

Microsoft's search deal with Yahoo (YHOO, Fortune 500), which aims to challenge Google's (GOOG, Fortune 500) dominance in online search, launched earlier this year. 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.

Earlier Thursday, Microsoft (MSFT, Fortune 500) CEO Steve Ballmer delivered a keynote address at the company's Professional Developers Conference in Seattle. In his speech, Ballmer said Microsoft is developing an early foothold in the smartphone market, which he sees as still in its infancy.

Microsoft shares rose 2.6% in after-hours trading. To top of page

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