Microsoft net profit up but surpassed by Apple

Microsoft said net profit increased 31 per cent to $5.23 billion in the third quarter of its fiscal year while revenue rose 13 per cent to $16.43 billion in what the company called a "mixed" market for personal computers.

Earnings per share of 61 cents were better than the 56 cents forecast by Wall Street analysts.

Apple reported quarterly net profit of $5.99 billion last week on revenue of $24.67 billion -- the first time it has posted a higher net profit than the Redmond, Washington-based Microsoft since March 1991.

In May of last year, Apple, maker of the Macintosh computer, the iPod, iPhone and iPad, dethroned Microsoft as the largest US technology company in terms of market capitalization.

Microsoft said Windows 7 was the fastest selling operating system in history with 350 million licenses sold although revenue for the segment was down four per cent in the quarter to $4.4 billion, in line with PC trends.

"We delivered strong financial results despite a mixed PC environment, which demonstrates the strength and breadth of our businesses," Peter Klein, Microsoft's chief financial officer, said in a statement.

"Consumers are purchasing Office 2010, Xbox and Kinect at tremendous rates, and businesses of all sizes are purchasing Microsoft platforms and applications," Klein said.

Bill Koefoed, Microsoft's general manager for investor relations, said in a conference call with financial analysts that business PC growth was nine per cent in the quarter.

"The business PC refresh cycle continues and is still in the early stages," Koefoed said, adding that emerging markets now represent nearly half of all worldwide PC shipments.

He said the consumer PC market declined eight per cent in the quarter and cited several factors, "including a 40 per cent decline in netbooks, broader consumer macroeconomics, increased competition for consumer spending and the strength of Windows 7 consumer PCs in the prior year."

"In total, we estimate the PC market declined one to three per cent," Koefoed said.

A number of industry analysts have attributed part of the weakness in PC sales to new touchscreen tablet computers, particularly Apple's iPad, and a growing market segment where Microsoft is yet to make a mark.

Koefoed and Klein also cited problems with monetization of the Internet search partnership Microsoft has entered into with Yahoo! in a bid to take on market leader Google.

"We are partnering closely with Yahoo! to improve monetization as quickly and efficiently as possible," Klein said.

Koefoed said "the expected monetization of the combined Yahoo! and Bing search marketplace in the US and Canada is taking longer than planned and revenue per share remains below our expectations."

Consequently, he said, "we have delayed international integration efforts to focus on improvements in the US and Canada."

While Microsoft's online services division saw revenue grow 14 per cent to $648 million it suffered an operating loss of $726 million.

Microsoft said revenue at its business division grew 21 per cent in the quarter and Office 2010 has become the fastest selling version of the productivity suite ever.

Revenue grew 60 per cent in the entertainment and devices division, Microsoft said, primarily from the popularity of the Kinect motion-controller for the Xbox 360 game console.

Computer server and tools revenue was up 11 per cent, Microsoft said.

Microsoft shares were down 1.27 per cent at $26.37 in after-hours trading.