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Businesses are continuing to refresh their outdated hardware, sending corporate PC sales up 9% during the quarter.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

Just the hot list include
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 24,580.89 119.19 0.49%
Nasdaq 7,692.82 -20.14 -0.26%
S&P 500 2,754.88 5.12 0.19%
Treasuries 2.90 0.00 0.10%
Data as of 10:12pm ET
Company Price Change % Change
Comcast Corp 33.81 1.02 3.11%
Bank of America Corp... 28.99 -0.30 -1.02%
General Electric Co 13.05 0.29 2.27%
AT&T Inc 31.69 0.09 0.28%
Micron Technology In... 57.10 -2.34 -3.94%
Data as of Jun 22

Sections

One of the world's leading smartphone makers is aiming for the biggest stock market listing in nearly two years. More

If Trump puts tariffs on European cars, it would hurt automakers who build a lot of cars in the United States. More

Russian trolls posing as an American college student tweeted about divisive social, political and cultural issues using an account that amassed thousands of followers -- and appeared in dozens of news stories published by major media outlets -- as recently as March. More