Stronger PC sales helped push Microsoft’s profit higher than forecast, but its usually solid entertainment division floundered.
Sales rose 6% to $17.41 billion, driven by strong demand for its server software products and Office application. Analysts had expected sales of $17.18 billion.
Profit was slightly down in the third quarter profit, at $5.11 billion compared to $5.23 billion last year, when it posted a one-time tax gain.
“We’re driving toward exciting launches across the entire company, while delivering strong financial results,” said CEO Steve Ballmer.
Worldwide personal computer sales rose a modest 1.9% in the quarter, according to Gartner. That was better than expected in a market facing hard-drive shortages from Thailand and the onslaught of Apple’s iPad.
The Windows beat was a positive surprise, looking at about 4% growth, versus expectations for about a 4% decline
That helped Microsoft, which supplies the operating system for 90% of PCs, to post a 4% increase in sales of Windows, still its main product.
“The Windows beat was a positive surprise, looking at about 4% growth, versus expectations for about a 4% decline,” said Josh Olson, an analyst at Edward Jones.
“We also had solid business and server performance as well. The Big Three, if you will, in terms of the revenue drivers, were all a little bit better than expected, with Windows a lot better than expected.”
Entertainment woes
On the downside, Microsoft’s usually profitable entertainment and devices unit posted a quarterly loss of 16% due to falling sales of its aging Xbox console and increased research and marketing costs for its new Windows smartphone software.
“There was weakness in entertainment and devices,” said Sid Parakh, an analyst at McAdams Wright Ragen. “If that were to have come in in-line, it would have been a pretty nice beat.”
Traditional console sales are down across the board this year.
Optimistic results
The results buoyed optimism around the world’s largest software maker, which is lining up a new tablet-friendly version of Windows for later this year and is looking to make a dent into Apple and Google’s domination of the mobile market this holiday shopping season.
“The results were a fair amount better than we were looking for,” said Rick Sherlund, an analyst at Nomura Securities. “Overall revenue growth was 6%, and this is before the new product cycle, which should come around October.”
Microsoft – whose shares hit a four-year high of $32.95 last month – has not said when its Windows 8 system will be released, but most in the industry expect it on devices from around October.
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