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Despite Windows Unit Shortfall, Microsoft Reports Strong Q2

Microsoft reported a positive fiscal Q2 in its earnings call on Thursday.

For the quarter ended Dec. 31, Microsoft reported total revenue was $20.89 billion, a 5% increase over the year-ago quarter. Net income for the quarter was $6.62 billion, essentially equaling last year's Q2 result.

Diluted earnings per share for the quarter was $0.78, up slightly from the prior-year's Q2 result of $0.77 per share. Peter Klein, Microsoft's chief financial officer, said in a conference call today that Microsoft returned $2.7 billion to shareholders during the quarter.

The main surprise in the Q2 earnings reported today was a 6% decrease in Windows and Windows Live revenue to $4.74 billion. Klein said that the PC market was challenged this fiscal quarter, especially on the consumer side. He was more upbeat about the enterprise desktop market, saying that one third of enterprise desktops now run Windows 7. Since its launch in October 2009, Windows 7 sales have grown to more than 525 million licenses sold, according to Microsoft.

While Klein might have been expected to point to floods in Thailand disrupting hardware supplies and affecting PC sales, he didn't stress that point that in his comments. He said that the supply disruptions were more widespread. He noted a continuing decline in netbook sales from 8% to 2% of total PC sales.

Quarter over quarter, other Microsoft divisions showed positive results. Leading the way was the Microsoft Business Division with $6.28 billion in revenue, growing 3% over the prior year's Q2 result. Microsoft claims to have sold 200 million Office 2010 licenses since the launch of that productivity suite. Exchange and SharePoint revenues each grew 10% compared with the previous year's second quarter. Dynamics CRM and Lync revenues each grew 30%, quarter over quarter, Microsoft claimed.

The Server and Tools Business division brought in $4.77 billion for the quarter, representing an 11% increase vs. the prior-year's Q2 period. Microsoft said that revenue from its System Center management products grew more than 20 percent.

The Entertainment and Devices Division showed $4.24 billion in revenue for the quarter. That figure represents a 15% increase compared with last year's Q2 result, Microsoft indicated. The highlight was Microsoft's Xbox 360 game console sales, now totaling about 66 million units.

Of course, Microsoft continued to show an operating income loss in its Online Services Division -- this time amounting to $458 million. Microsoft continues to chase Google's No. 1 search-advertising market share with Bing. Microsoft is claiming ownership of 27 percent of the U.S. search market when Yahoo properties are included in the total. Still, the division brought in $784 million, up 10% from last year's Q2 result. Klein said that online ad sales were up 13% for Microsoft.

Microsoft's Office 365 suite of services, along with its earlier Business Productivity Online Services (BPOS) offering, is actually organized under the Microsoft Business Division. The company didn't break down the revenue figures for Office 365, but Klein said that "more than 100,000 businesses have made the commitment to our online services," presumably meaning that they are using Office 365 or BPOS services, but he wasn't specific.

Microsoft's financials and its recorded broadcast of Q2 results can be found at the Microsoft investor relations page here.

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About the Author

Kurt Mackie is senior news producer for 1105 Media's Converge360 group.

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