Microsoft’s Results Easily Beat Expectations

Microsoft (NSDQ: MSFT) posted a 5 percent increase in sales during the most recent quarter, countering predictions that its revenue would stay flat — or even fall — because of slow growth in the market for PCs. The results were particularly remarkable because a year ago Microsoft benefited from blockbuster sales of its then-new Windows 7 operating system. This quarter, however, the company was helped by huge sales of another hit product, its Kinect gaming system, which drove a 55 percent increase in revenue at its entertainment and devices unit, as well as strong sales at its business division, which sells Office.

Sales at the entertainment devices unit jumped to $3.65 billion from $2.4 billion during the same period a year ago. Profits nearly doubled to $636 million. Microsoft had said it expected to sell 5 million Kinects but announced at the Consumer Electronics Show earlier this month that it had in fact sold 8 million. The Business division, meanwhile, reported a 24 percent jump in sales.

The company’s online services division also increased sales a solid 19 percent but losses increased (once again) to $562 million from $477 million during the same period a year ago. In its quarterly filing with the SEC, Microsoft said that online ad sales had increased 23 percent during the quarter in large part due to growth at its Bing search engine. It blamed costs associated with its search advertising deal with Yahoo (NSDQ: YHOO) and increasing headcount for the growing losses.

The only Microsoft unit to report a drop in both sales and profits was its flagship Windows division, where revenue fell 30 percent. The company said revenue at the unit had been helped a year ago by the strong debut of Windows 7. Overall, Microsoft posted earnings per share of 77 cents, up slightly from a year ago, and above the 69 cents per share analysts had expected on average. The company’s stock is down slightly in after-hours trading.