Microsoft Beats Forecasts With Record Revenues

Thanks to the early success of its Windows 7 operating system, Microsoft on Thursday was able to report increases in both net income and revenue for the first time in nearly a year.

The software giant said revenue was up 14% to $19.02 billion from $16.6 billion during the same period year-over-year, while net income and diluted earnings per share for the quarter were $8.51 billion and $6.66 billion -- up 43% and 60%, respectively.

"Exceptional demand for Windows 7 led to the positive top-line growth for the company," said Peter Klein, chief financial officer at Microsoft, who also noted the company's continuing efforts to "manage" costs.

Microsoft, meanwhile, reported earnings per share of 74 cents, up from 47 cents during the same period year-over-year.

In its fiscal first quarter, sales fell significantly year-over-year, which resulted in earnings of 40 cents a share -- a decline of 17%. Yet, as a result of cost-cutting -- including some 5,000 projected layoffs -- the software giant managed to beat Wall Street's expectations of 32 cents a share.

Microsoft's troubles were attributed to the continued global recession and resulting poor PC sales. Gartner Research this summer reported that worldwide PC shipments decreased 5% year-over-year in the second quarter of 2009.

Turning a new leaf, on October 22, Microsoft launched Windows 7 and Windows Server 2008 R2 launched globally. Through the second quarter, Microsoft reports having sold over 60 million Windows 7 licenses.

While Windows 7 was expected to sell well, some analysts questioned the speed at which consumers and businesses would update their systems. Jefferies & Company analyst Katherine Egbert, for one, said in a research note that firms are not likely to start their Windows 7 upgrades until mid-2010.

Despite the success of Windows 7, this past quarter has not been without its setbacks for Microsoft.

Its online services division reported a 5% year-over-year decline -- despite the fact that Bing's market share has been up for 7 straight months -- while online ad revenue was down 2%.

Meanwhile, the company's ad selling partnership with Facebook was just put on life-support -- over three years after it announced a deal to sell ads on Facebook, and two years since shelling out $240 million for a 1.6% stake in the network.

Microsoft has already lost part of Facebook's ad business, and while it's presently renegotiating the agreement, the software giant still reportedly faces the possibility that more ads will be pulled.

Also, world governments, including France and Germany, recently began advising computer users to download any Web browser other than Microsoft's Internet Explorer.

The calls came after it was discovered that Internet Explorer contained a serious security flaw that could be exploited by hackers and cyber-criminals, and was likely the cause of the Google-targeted cyberattacks in China late last year.

Going forward, Microsoft has a lot of work to do in the mobile arena, where it has so far failed to establish itself, and which most analysts predict will make up an ever-larger share of the digital universe. The latest version of Windows Mobile was widely criticized as an outright failure.

The company is said to be enhancing its "go to market approach," and getting more involved with mobile original equipment manufacturers.

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