Strong Surface Sales Help Microsoft Beat Wall Street's Holiday Quarter Forecasts

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Microsoft on Thursday handily exceeded Wall Street's expectations in its fiscal second quarter, but said nothing about whether its five-month old search for a new CEO is nearing a close.

For the quarter ended Dec. 31, Microsoft's revenue jumped 14 percent to $24.52 billion on earnings of 78 cents per share. Wall Street analysts were expecting $23.68 billion and 68 cents per share. Microsoft's net income grew 2.8 percent to $6.56 billion during the quarter.

Investors reacted positively to the news, sending Microsoft shares up nearly 4 percent to $37.42 in Thursday after-hours trading.

[Related: Microsoft Partners In Uproar Over Cloud Sales Commission Cuts]

Microsoft's Devices and Consumer division revenue rose 13 percent to $11.91 billion. Surface revenue came in at $893 million for the quarter, more than double what Microsoft reported in the first quarter, the first in which it broke out Surface sales.

Microsoft also sold more than double the number of Surfaces it sold last quarter, CFO Amy Hood said during the company's earnings call. She attributed the growth to "improved execution at retail and favorable reviews" of the Surface 2 and Surface 2 Pro tablets, which debuted in October.

Microsoft's Windows sales were a mixed bag. While Windows OEM revenue dropped 3 percent year-over-year, sales of the enterprise-focused Windows Pro versions grew 12 percent.

While consumer Windows sales continue to be impacted by "competing form factors" like tablets, Hood said this was the third consecutive quarter in which Windows sales to business customers saw growth.

Microsoft's Office sales to consumers dropped 24 percent during the quarter, while sales to businesses grew 5 percent year-over-year. Chris Suh, Microsoft's general manager of investor relations, said 16 percent of the decline was from customers moving from on-premise Office to the cloud based Office 365 home Premium, which he said now has more than 3.5 million subscribers.

Microsoft's Commercial division jumped 10 percent to $12.67 billion compared to last year's quarter, driven by double-digit revenue growth for SQL Server and System Center. Hood said Microsoft's strategy of adding analytics and other non-database features to SQL Server "has continued to be appealing" for customers.

For its fiscal third quarter, Microsoft is expecting revenue of $20.25 billion, whereas Wall Street analysts have forecast $20.47 billion.

While Re/Code reported over the weekend that Microsoft's board had made its CEO pick and would be revealing it this week, executives on the earnings call didn't bring it up, and none of the Wall Street analysts asked for an update.


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