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Microsoft Easily Tops Estimates But Online Lags

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Microsoft (NSDQ: MSFT), which continues to struggle to combat the perception that it may be irreversibly falling behind the competition in several areas, can at least say that its current strategy is still paying off financially. The company posted better-than-expected quarterly results, saying sales increased 25 percent to $16.2 billion, while earnings per share increased to 62 cents from 40 cents during the same period a year ago. On average, analysts had expected earnings per share of 55 cents and revenue of $15.8 billion.

In a statement, Microsoft CFO Peter Klein called the quarter “exceptional,” saying that the company had seen “solid” growth in its enterprise business, as well as “strong” consumer demand for Office 2010, Windows 7 and its Xbox 360 video game console.

The company also noted that it was seeing a “healthy and sustaining PC refresh cycle.” Indeed, sales at the company’s flagship Windows and Windows Live division, which continues to benefit from the release of Windows 7, jumped to $4.785 billion, from $2.88 billion during the same period a year earlier. On average, analysts had expected sales of $4.6 billion.

Microsoft’s online services division, however, fared more poorly than some analysts had expected. Sales at the unit, which includes Bing and MSN, increased only 8 percent to $527 million. That was down sequentially compared to last quarter, when the division posted a 13 percent year-over-year increase in sales. Losses also rose to $560 million, from $477 million a year ago.

In its quarterly filing with the SEC, Microsoft said that online ad revenue had increased 13 percent in the quarter but that losses overall were up due in part to a 27 percent increase in research and development expenses, which was driven by higher spending on employees.

At the entertainment and devices division, which includes Xbox, as well as Windows Phone, sales were up 27 percent, in large part because of strong sales of the Xbox 360. The unit also posted a 30 percent increase in operating income. The company’s server and tools and business division also reported better than expected results, posting 11 percent and 12 percent increases in sales, respectively.