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Earnings: Microsoft Revs Up 30 Percent; Entertainment Profitable On Games; Ad Revs Up 38 Percent

Microsoft (NSDQ: MSFT) reported revenue of $16.37 billion in its quarter ended December 31, up 30 percent year-over-year from $12.54 billion. Net income grew by 32 percent to $4.7 billion ($.50 per share), from $2.6 billion ($.26 per share). The previous year’s quarter was hurt by a $1.64 billion revenue deferral, without which top-line and earnings growth would have come in at 15 percent and 32 percent respectively. The company cited the strength of Windows Vista for the strong year-over-year performance. For the full year the company is predicting $59.9-$60.5 billion, which is over $700 million more than its prior forecast. Between the strong forecast and earnings beat of .04 per share, the stock is up about 4.5 percent after hours.

Entertainment & Devices: Division revenue hit $3.06 billion, up a modest 3 percent, but operating profit swung to $357 million from a loss of $302 million in the year-ago period. The company said that life-to-date Xbox 360 sales stand at 17.7 million, an increase of 70 percent over the prior year. Xbox live claims 10 million members.

Online Services: The division including its efforts in online advertising grew revenue 38 percent to $863 million, although losses more than doubled from $118 million to $245 million. ex-aQuantive, which contributed $154 million in revenue, online ad revenue grew 26 percent. Live IDs grew 27 percent, to 427 million.

Release | Webcast | Slides (.ppt) | Transcript

Conference Call: The old workhorses at Microsoft — Windows, business software, servers — are riding high at the moment, perhaps taking some of the spotlight off the company’s emerging business. CFO Chris Liddell acknowledged that the online business is not yet up to par with some of its peers, but he called the company’s efforts a “multi-year journey,” while the company is “investing with the expectation to be at a critical mass in several year.” In the meantime, Microsoft will spend in all areas of its online business, including search, content, publisher tools and e-commerce.

Economy: Microsoft isn’t expressing much concern about the state of the US economy, though Liddell did say that no company can be totally immune from weakness: “If you’re looking at particular verticals, probable we can find a couple of soft spots… we’re being cautious like everyone else about what might happen in the US economy… you have to look really hard to find any weakness in our results in the first half.”

Entertainment: The company trotted out some impressive-sound statistics to tout the health of this business: Consumers spent 27 percent more on Xbox and related products than on the Wii and twice as much than on the PS3 in the latest quarter. Xbox 360 had four titles that sold over 1 million in the quarter, compared to three for the Wii and none for the PS3. 10 million members for Xbox live was achieved six months ahead of schedule. As for the Zune, Microsoft says 1.5 million people joined the Zune social community during the holiday season and music sales doubled from last year.