Microsoft posts gains but weak PC sales hurt Windows

Windows made only slight gains last quarter, largely due to business and emerging market spending, holding back profit growth for the Microsoft.

Sales of Windows, which still runs more than 90% of the world’s PCs, edged up only 2% from the year-ago quarter, in line with limp PC sales across the board.

That broke the streak of three straight quarters of declines, but it fell short of some analysts’ hopes.

We still had Windows miss again, although not by nearly as much as it has the last couple quarters

“We still had Windows miss again, although not by nearly as much as it has the last couple quarters,” said Brendan Barnicle, an analyst at Pacific Crest Securities.

Sales of Windows 7 have leveled off after a big launch in 2009. Growth is now dependent on Microsoft’s core business customers, which are still spending on technology despite the slow economy.

Microsoft chief financial officer Peter Klein said the cycle of businesses buying new PCs to replace aging machines was still in the “middle innings”, offering hope of continuing modest growth.

“We expect that dynamic of business PCs growing faster (than consumer) to last throughout this fiscal year at least,” Klein said on a conference call with analysts.

Full results

Microsoft reported fiscal first-quarter net profit up 6% to $5.74 billion compared with $5.41 billion a year ago.

Overall sales rose 7% to $17.37 billion, helped by Office, which remains popular with businesses even in the difficult global economy.

The Office unit posted an 8% gain in sales to $5.6 billion, making it Microsoft’s biggest-selling and most profitable unit.

The server and tools unit rose 10% to $4.2 billion.

The entertainment and devices unit posted a 9% gain in sales, helped by the Xbox, which remains the most popular game console in the United States.

Bing’s loss narrows

The brightest spot for the world’s largest software company was an indication that its perennially money-losing online services unit – including the MSN Internet portal and Bing search engine – may have turned a corner.

The unit lost $494 million in the quarter, the lowest loss in the last seven quarters, slowing the flood of red ink that has cost Microsoft more than $5 billion since it launched Bing in mid-2009, as it invests heavily to catch up with Google.