Microsoft profit soars 31% on strong Office and Kinect sales

Microsoft stock By David Goldman, staff writer


NEW YORK (CNNMoney) -- Microsoft likes to talk about how its business doesn't rely on personal computer sales to consumers. It proved the point this quarter.

While consumer PC sales dropped 8%, Microsoft's profit rose 31%. The company's overall sales were up 13%, to $16.4 billion.

"Despite the mixed PC environment, we delivered strong results," Todd Setcavage, Microsoft's new director of investor relations, said in an interview right after the company's earnings announcement. "It really speaks to the breadth of our businesses."

Windows sales dropped 4%, and earnings from that division sank 10% in the quarter ended March 31.

Normally, that would spell trouble. Investors have long feared that Microsoft does not have a solid sales driver for the post-PC world. Smartphone sales are outpacing PCs, and tablets have begun to steal market share away from laptops and especially netbooks. At the moment, Microsoft isn't seriously contending in either tablets or smartphones.

But Microsoft's other products helped save the day.

Sales of the Xbox and the controllerless Kinect add-on were incredibly strong. Revenue in Microsoft's entertainment division rose 60% to nearly $2 billion, as it sold 2.7 million Xboxes and 2.4 million Kinects.

Server products like Sharepoint also helped drive sales and profit, with revenue in that division rising 11%.

Businesses are continuing to refresh their outdated hardware, sending corporate PC sales up 9% during the quarter. That helped Office sales skyrocket 21%. Businesses are deploying Office 2010 at a rate five times faster than they adopted the previous version, Office 2007.

There's more non-PC-related success coming in the future, too: Microsoft signed an agreement with Nokia (NOK) during the quarter that both Gartner and IDC predict will make Windows Phone the second most-used mobile operating system behind Google's (GOOG, Fortune 500) Android by 2015.

On the other hand: It wasn't all good news, and shares of Microsoft (MSFT, Fortune 500) slipped 2% after hours.

Sales of netbooks fell a stunning 40% in the quarter, and Windows still hasn't deployed on enough tablets to be taken seriously as an iPad or even an Android competitor.

Windows sales also would have been much worse had corporations not doubled their deployment of Windows 7 in the past six months. When the current business refresh cycle ends, consumer demand may not be there to pick up the slack.

Online search engine Bing posted yet another hugely disappointing quarter, losing $726 million in the quarter and nearly $2 billion in nine months. Despite steady share gains in search and a partnership agreement with Yahoo (YHOO, Fortune 500), Microsoft's relative revenue is disappointing compared to its competition, and Microsoft still has yet to turn a profit in that five-year-old unit.

Overall, the Redmond, Wash., software giant said its fiscal third-quarter net income rose to $5.2 billion, or 61 cents per share, for the period ended March 31. Results included a one-time tax benefit of 5 cents per share. Without the benefit, Microsoft earned 56 cents per share.

Analysts polled by Thomson Reuters, who typically exclude one-time items from their estimates, had forecast earnings of $4.8 billion or 56 cents per share. 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 17,279.74 13.75 0.08%
Nasdaq 4,579.79 -13.64 -0.30%
S&P 500 2,010.40 -0.96 -0.05%
Treasuries 2.59 -0.04 -1.60%
Data as of 8:46pm ET
Company Price Change % Change
Yahoo! Inc 40.93 -1.16 -2.74%
Microsoft Corp 47.52 0.84 1.80%
Bank of America Corp... 16.95 -0.09 -0.53%
Oracle Corp 39.80 -1.75 -4.21%
Facebook Inc 77.91 0.91 1.18%
Data as of 4:04pm ET

Sections

Law enforcement officials say Frank Tamayo was the middleman in a $5.6 million insider trading scheme that involved him eating pieces of paper to cover up the crime. More

Scotland's clear rejection of independence has eased fears that it could suffer the kind of decline seen in Quebec after it failed to break away from Canada. More

It's really good to be Larry Ellison. The Oracle founder is stepping down as CEO, so maybe he'll have more time to enjoy his glamorous life. More

As Occupy Wall Street goes on its debt-abolishing tear, thousands of people across the country are begging them to forgive their loans. 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.