Surging Kinect, Office 2010 Sales Boost Microsoft's Q2 Results

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"The pace of business spending, combined with strong consumer demand, led to another quarter of operating margin expansion and solid earnings-per-share growth," said Chief Financial Officer Peter Klein, in a statement.

For the second quarter ended Dec. 31 Microsoft reported sales of $19.95 billion, up 5 percent from $19.02 billion in the same quarter last year. But net income slipped 0.4 percent to $6.63 billion from $6.66 billion one year earlier. Per-share earnings increased to 77 cents from 74 cents.

The Microsoft Business Division, responsible for the Office application suite and Dynamics lines of ERP and CRM applications, saw sales grow 24 percent year-over-year from $4.86 billion to $6.03 billion. Much of that was due to rapid sales of Office 2010. Microsoft said the product was the fastest-selling consumer version of Office ever with license sales more than 50 percent ahead of Office 2007 during an equivalent period following its launch.

Second-quarter sales from Microsoft's Entertainment and Devices Division, which includes Xbox 360 consoles, Xbox Live subscriptions and Xbox games, surged 55 percent to $3.70 billion from $2.38 billion last year. Many of those sales were driven by Microsoft's leading-edge Kinect motion sensor technology, of which 8 million units were sold in just 60 days after the product became available in early November

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The Windows and Windows Live Division, however, reported a 29 percent drop in revenue from $7.19 billion last year to $5.05 billion in the just completed quarter. Microsoft said the year-ago quarter included the recognition of $1.71 billion of deferred revenue relating to the Windows 7 Upgrade Option program and sales of Windows 7 before its general availability in October 2009.

Sales of products from the Server and Tools Division increased 10 percent in the second quarter to $4.39 billion from $3.98 billion. Earlier this month CEO Steve Ballmer, in an e-mail to employees, announced a management shakeup of the division's management, including the reported dismissal of division president Bob Muglia.

Microsoft said it has sold more than 300 million Windows 7 licenses and the operating system is running on 20 percent of all Internet-connect PCs.

The Online Services Division reported 19 percent growth in sales to $691 million in the second quarter from $579 million one year ago.