Microsoft’s Online Sales Rise Nearly 12 Percent — But Online Losses Up Even More

Continued strong sales of the company’s Windows 7 operating system drove Microsoft’s revenue and net income up for the second quarter in a row. Revenue increased 6 percent to $14.5 billion from $13.65 billion a year ago; analysts on average had expected revenue of $14.38 billion. Earnings per share came in at 45 cents, up from 39 cents during the same period a year ago. Helping: A comparison to last year’s dismal quarter in which the company reported its first ever year-over-year drop in revenue.

The company’s online division finally put in a strong performance revenue-wise, with sales up 11.6 percent to $566 million (Last quarter, sales had dropped nearly 5 percent). The company said specifically that online ad revenue was up a healthy 19 percent. But that growth is coming at a substantial cost; Microsoft’s online losses grew to a staggering $713 million during the quarter, up from $411 million during the same period a year ago and $466 million last quarter. Credited with driving the growing losses: Additional headcount, reimbursements to Yahoo (NSDQ: YHOO) because of the two companies’ search deal, and marketing costs.

Microsoft’s flagship Windows division had a standout performance, with a 28 percent rise in sales to $4.4 billion, above analyst expectations. Net income there was up 34 percent. The company’s business division reported a 6 percent drop in sales and a 5 percent fall in profits (That should turn around next quarter, however, since the next version of Office is about to be released).

Sales at Microsoft’s server and tools, as well as its entertainment and devices division, were basically flat, although the entertainment and devices division did manage to swing to a $165 million profit, compared to a $41 million loss during the same quarter a year ago.

I’ll have more details from the earnings call, which starts at 2:30 p.m. PT.