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7/22/2010
10:25 PM
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Microsoft Reports 48% Increase In Profits

Windows 7 and Office 2010 paced strong fourth fiscal quarter for the software powerhouse.

Microsoft rode its workhorses Windows and Office to a 48% increase in profits in the fourth fiscal quarter, while its attempts at newer technology trends, such as search and mobile phones, were less successful.

The software maker on Thursday reported a net income of $4.5 billion, or 52 cents a share, for the quarter ended June 30, compared to a profit of $3.05 billion, or 34 cents a share, the same period a year ago. Revenue increased 22% year to year to $16.04 billion from $13.1 billion.

"We saw strong sales execution across all of our businesses, particularly in the enterprise with Windows 7 and Office 2010," Kevin Turner, chief operating officer for Microsoft, said in a statement.

Indeed, Microsoft's latest results showed that Windows and the Office productivity suite that run on traditional PCs still have lots of steam, despite having been around well before the Internet or today's hottest electronic device the smartphone.

Microsoft benefited from businesses increasing spending to replace older computers that companies held on to during last year's economic recession. The company estimated that worldwide PC shipments grew by about 22% to 24% in the quarter.

Driven mostly by Windows 7 sales, Microsoft's Windows and Windows Live Division reported a 44% increase in revenue year to year to $4.6 billion. Operating income rose 59% to $3.06 billion.

Sales of Office 2010, released during the quarter, drove revenue for Microsoft's Business Division up 15% to $5.3 billion, while operating income rose 21% to $3.3 billion.

However, Microsoft didn't do as well in areas where it competes with Google and Apple, both leaders in newer technologies. In fact, Microsoft's revenue in the quarter was just slightly ahead of the $15.7 billion reported this week by Apple for about the same period. A decade ago, Microsoft's revenue tripled Apple's, but the latter company remains significantly less profitable.

While revenue from Microsoft's Online Services Division, which includes the company's search engine Bing, was up 13% to $565 million, the division saw an operating loss of $696 million, 19% more than a year ago. A significant portion of the loss was due to the cost associated with a deal in which Microsoft will take over search on the web portal Yahoo.

However, Microsoft has seen gains in Internet search, which is a key component of online ad sales. The company's overall share of the U.S. Internet search market in June jumped 7% from May, while market leader Google saw a decline of 1%. Google dominates the market with nearly a 72% share.

Microsoft's Entertainment and Devices Division also failed to be profitable. Despite a 27% increase in revenue to $1.6 billion, the division suffered an operating loss of $172 million, 22% higher than a year ago. Much of the operating loss was due to the discontinuation of Microsoft's Kin phones. Poor sales forced the company to drop the devices just two months after launch.

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