Microsoft net profit soars on record revenue

The US technology titan said Thursday that it made a net profit of $5.41 billion on unprecedented revenue of $16.2 billion in the first quarter of its fiscal year.

The 51 per cent surge in net profit amounted to 62 cents per share, besting Wall Street predictions. Microsoft stock rose 3.5 per cent to $27.20  in after-hours trading.

"This was an exceptional quarter, combining solid enterprise growth and continued strong consumer demand for Office 2010, Windows 7, and Xbox 360 consoles and games," said Microsoft chief financial officer Peter Klein.

Microsoft reported year-over-year growth in all its divisions. The technology giant said it continued to see a "healthy and sustaining" pattern of businesses buying new computers in a positive sign for the economy.

"We are seeing improved business demand and adoption," said Microsoft chief operating officer Kevin Turner.

Demand for Microsoft software offered as services in the Internet "cloud" also continued to grow, according to Turner.

Sales of Microsoft Xbox 360 videogame consoles were up 38 per cent and the firm's Bing search engine was gaining market share with the consummation of a partnership with Yahoo!.

Microsoft and Yahoo! reached an agreement last year which calls for Bing to eventually power searches at all Yahoo! websites.

The latest version of the Windows operating system that has been Microsoft's top money maker grew in line with the overall personal computer market, with the software pre-installed on new machines.

The Office 2010 suite of work applications, Microsoft's second-biggest product, was off to a strong start after its retail release in mid-June.

While Microsoft has been ramping up offerings of software as online services it has yet to show significant momentum in the area, according to Rob Helm, managing vice president of research at independent analyst firm Directions On Microsoft.

"Microsoft is really counting on the cloud to pull in new customers," Helm said. "It really hasn't started to bite and isn't showing up in the numbers."

Cloud computing promises to be a mixed blessing for Microsoft, with the shift causing a drop in packaged software sales while letting the firm tap into new revenues managing networks for companies.

"The cloud is going to turn customers who buy something from Microsoft and go away and not send the company another dime for six years into subscribers," Helm said.

"It is going from a business like car sales to a business like providing electricity. People will be paying Microsoft every month."

Microsoft was confident the year-end holiday shopping season would be a boom-time for its Entertainment and Devices division due to Windows Phone 7 handsets and Kinect gesture-sensing controls for Xbox consoles.

"The Kinect controller isn't out yet and the Windows Phone 7 just launched," Helm said. "Those two could have important effects in the next year."

Microsoft predicted that sales for that division in the year-end quarter would be 30 per cent greater than in the same period last year.

"It has high hopes for that line," Helm said.

Microsoft sold 2.8 million Xbox 360 consoles in the first fiscal quarter and took in $350 million dollars on sales of the latest installation of a "Halo" science fiction action game for exclusive play on the devices.

Dark spots in the earnings report included word of a Windows 7 "lower attach rate in China," meaning that sales of legitimate copies of the operating system lagged behind sales of computers.

"The pirates reared their ugly heads again this quarter," Helm said. "The implication is that despite all the money Microsoft is spending in China on protecting intellectual property, piracy is an ongoing issue there."