Update: Microsoft Q1 results boosted by Windows, Xbox, Office

Office 2010, Windows 7, and Xbox 360 behind yet another robust fiscal quarter

Healthy sales of Windows 7, Office 2010 and Xbox 360 consoles propelled Microsoft to $5.41 billion in net income for its first fiscal quarter of 2011, a 51% increase from the same period a year before.

The company also reported a 25% increase in revenue for the quarter, or $16.20 billion for the quarter that ended Sept. 30. This figure exceeds what many analysts had expected the company to generate for the time period: A poll from Yahoo Finance found that analysts, on the average, expected the company to earn around $15.80 billion for the quarter.

Overall, sales of the Microsoft Office productivity suite grew by 15%, thanks to the June 2010 release of the new version, Office 2010. Xbox 360 console sales grew by 38%, and the company also noted that the PC refresh cycle continues to drive Windows 7 sales.

"We are seeing improved business demand and adoption. Our enterprise agreement rates were strong, reflecting business commitment to Windows 7, Office 2010, and our server and database products," said Kevin Turner, Microsoft chief operating officer, in a statement.

The results were, overall, a major improvement from the prior year, results from which were sullied by the global recession. Then, the company reported $12.92 billion in revenue for the first fiscal 2010 quarter, which was itself a 14% decline from the same period the year before. Net income was $3.57 billion, a decline of 18%. For that quarter, the company also deferred $1.47 billion of revenue, representing early OEM sales of Windows 7.

This quarter's robust performance stands in contrast with the increased wariness that the investment industry has shown for Microsoft, which has been criticized for not keeping abreast of technologies beyond its stronghold in personal computers, such as in smartphones and tablets.

At the Microsoft Professional Developers Conference this week in Seattle, Microsoft CEO Steve Ballmer expressed enthusiasm for moving into new market areas such as smartphones.

The possibility of any forthcoming revenue boost from early Windows Phone 7 licenses was not discussed during the Microsoft analyst briefing that followed the quarterly earnings announcement, however. Instead, Microsoft Chief Financial Officer Peter Klein pointed to cloud services as a major source of potential growth for the company, citing a recent contract win with the state of New York.

"These cloud wins provide totally new economic opportunities for us. In many cases, these are customers that we don't have as customers today," Klein said. He also noted that Azure bookings grew 40% from the previous quarter.

Providing Windows for tablets may prove to be another area of growth for the company. "We're confident that tablets will expand the PC market and we're enthusiastic about our opportunity to bring Windows to additional form factors in new usage scenarios," Klein said. He did not think tablet sales would cannibalize PC sales.

While Microsoft said that enterprise and consumer sales were both good in the quarter, enterprise sales will continue to be a driver for the company for the remainder of the fiscal year, it said.

For the upcoming quarter, Microsoft expects business PC growth to outpace consumer PC growth, and for sales in emerging markets to outpace those in the mature markets such as the United States, Klein said.

"We expect business PC and server purchasing to remain a high priority for most businesses," Klein said.

Joab Jackson covers enterprise software and general technology breaking news for The IDG News Service. Follow Joab on Twitter at @Joab_Jackson. Joab's e-mail address is Joab_Jackson@idg.com

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