Strong PC sales boost Microsoft's bottom line

Software maker reports record sales for the quarter that ended March 31, buoyed by Windows 7.

Microsoft is getting a strong boost from an improving PC market as the economy continues to move toward steadier ground.

The software maker said on Thursday that it earned $4.01 billion, or 45 cents per share for the quarter, on revenue of $14.5 billion for the three months ended March 31. That revenue figure excludes $305 million in Office sales that Microsoft is deferring because of a technology guarantee program that guarantees those now buying Office a free upgrade to Office 2010 when it ships in June.

Both revenue and earnings came in ahead of what analysts had been forecasting and up from the prior year.

"Windows 7 continues to be a growth engine, but we also saw strong growth in other areas like Bing search, Xbox Live, and our emerging cloud services," CFO Peter Klein said in a statement.

It's a marked change from a year ago, when Microsoft posted its first year-on-year revenue decline , with sales down 6 percent.

The strong earnings are not a shock given the positive earnings report from Intel , as well as robust PC sales estimates from IDC . Microsoft's CFO said last month that the company saw business picking up over the next 18 to 24 months and said Microsoft should benefit from an increase in PCs and server sales.

In its prior earnings report, Microsoft said the release of Windows 7 helped the company ship a record number of copies of Windows and said at the time there were also signs that the server market was starting to pick up after months of stagnation.

This quarter, Microsoft said that Windows revenue was up 28 percent from a year earlier, led by strong demand for Windows 7, which it said is now running on more than 10 percent of all PCs worldwide.

"Business customers are beginning to refresh their desktops and the momentum of Windows 7 continues to be strong," Chief Operating Office Kevin Turner said in a statement. "We are also seeing tremendous interest in our market-leading cloud services for business."

Microsoft said that PC sales for the quarter were up between 25 percent and 27 percent from a year earlier. The company noted that Windows unit sales to computer makers were up 30 percent and revenue was up 29 percent, meaning Windows did better than the overall computer market.

It also noted that while consumer sales still are growing faster than the corporate market, Windows sales to businesses were up 15 percent form the prior year.

The company said that of its Windows sales, 72 percent were running some premium version of the operating system (44 percent being a consumer premium version and 28 percent being one of the business versions).

The company also said it sold 1.5 million Xboxes during the quarter, but Xbox 360 sales were down 12 percent from a year ago.

The unit-by-unit results (see chart below) show that the bulk of Microsoft's growth on both the top and bottom lines came from the unit that includes Windows. However, Microsoft also touted gains in Bing market share as well as in its enterprise services business.

Microsoft's stock had been inching up ahead of the earnings report. Shares of Microsoft dipped some in after-hours trading following the report, changing hands recently at $30.25, down $1.14 after closing at $31.39.

Update: 1:55 p.m. PDT: Earlier, I linked to a report from All Things Digital suggesting that Apple had passed Microsoft in market capitalization, however that appears to have been a math error. Update 3:52 p.m. PDT: All Things Digital has clarified its post to say that Apple has passed Microsoft only in "float-adjusted market capitalization."

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