"The PC market
was stronger than we thought," says Charly Tracy, Microsoft's director of investor relations. Beset by a series of delays, Vista's release came at least two years later than originally projected. It
arrived amid concerns about its complexity and the propensity of its security features to hinder use of other programs, particularly certain popular video games.
But Xbox video game systems and online services--areas being nurtured for future growth--continue to operate in the red. The company cut spending on marketing in the quarter, ensuring lower Xbox sales, but stemming losses somewhat, says Matt Rosoff, industry analyst at Directions on Microsoft.