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Windows 7 Sales Boost Microsoft's 2Q Results

Microsoft outperformed expectations in its fiscal second quarter, largely based on consumer Windows 7 spending, according to an announcement issued on Thursday.

Net income for the quarter, which ended on Dec. 31, 2009, was $6.7 billion, representing a 60 percent increase compared with the year-ago second quarter. Peter Klein, Microsoft's chief financial officer, described the $19 billion for the quarter as "record revenue." The revenue spike was driven by strong consumer demand for PCs, based mainly on sales of Windows 7 Home Premium and Windows 7 on netbooks, he said.

Klein suggested that we may see an overall year-over-year PC market growth of between 15 percent and 17 percent. However, during the second quarter, Microsoft did not see a return by enterprises to their usual spending levels on PCs. Klein predicted PC spending by businesses would be flat over this calendar year.

The $19 billion revenue figure for the quarter exceeded Wall Street expectations, which had predicted $17.9 billion in revenue for Microsoft.

Microsoft's Windows & Windows Live Division reported revenue of $6.9 billion for the quarter versus $4 billion in the year-ago second quarter. The Windows revenue figure got a boost from deferred revenue generated by the Windows 7 Upgrade Option Program, as well as pre-sales of Windows 7.

Microsoft sold more than 60 million Windows 7 licenses through the end of its fiscal second quarter, which made it the "fastest selling operating system in history," according to Klein.

All of the other Microsoft divisions were relatively flat in terms of revenue. Klein described the "new" products for the fiscal second quarter as Windows 7, Windows Server 2008 R2, Exchange 2010 and Bing. Upcoming products for the calendar year include Windows Azure (with commercial pricing beginning on Feb. 1) and Project Natal, the natural user interface-based game series expected to arrive in time for this year's holiday season.

Klein said that Microsoft's Xbox Live portal now has 23 million members, representing growth of 35 percent compared with last year.

Microsoft continued to take a loss in its Online Services Division. In response to a question about when revenue might be seen from Bing, Microsoft's new search engine, Klein said that much depends on completing a search-advertising deal with Yahoo. The proposed deal is currently under review by regulatory authorities. Klein added that revenue gains from Bing won't be seen until 2011 and beyond.

Microsoft had a 1 percent increase in its operating expenses to $6.9 billion for the quarter, which included about $290 million for legal expenses. Klein also announced that Microsoft had eliminated 800 positions during the quarter. The headcount at Microsoft was reduced by 8 percent year over year, he added.

Klein delivered Microsoft's second-quarter results in a recorded talk that can be accessed here. It was Klein's first occasion to describe Microsoft's earnings as Microsoft's new CFO. Chris Liddell stepped down from the position at the end of December.

About the Author

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

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