Microsoft net profit slips despite record 2Q revenue

SAN FRANCISCO, Jan 27, 2011 (AFP) - Microsoft on last Thursday reported its net profit slipped in the last quarter despite record-high revenue boosted by insatiable demand for Kinect controllers for Xbox 360 consoles.

The US technology titan made $6.63 billion in net profit on $19.95 billion in revenue in the quarter ending December 31. Net profit for the quarter was slightly below the $6.66 billion the firm made in the same period a year earlier even though revenue climbed nearly a billion dollars.

“We are enthusiastic about the consumer response to our holiday lineup of products, including the launch of Kinect,” said Microsoft chief financial officer Peter Klein. “The pace of business spending, combined with strong consumer demand, led to another quarter of operating margin expansion and solid earnings per share growth.”Microsoft boasted that it sold more than eight million gesture-sensing Kinect controllers for Xbox 360 videogame consoles in the 60 days after it hit the market in November.
Kinect lets people control on-screen action with body movements or spoken commands and is priced at $150.

A 55 percent growth in revenue at Microsoft's entertainment and devices division was credited with boosting the amount of money the company took in during the quarter. Klein cautioned that the mark-up on Kinect and Xbox hardware was lower than for the company's other products but noted that they came with opportunities to make money from video games, digital films, and other offerings.

“Kinect is the fastest selling consumer electronics device in history,” Klein said during an earnings conference call with analysts. “It is the first step to fundamentally change the way people interact with computers.”He estimated that revenue in Microsoft's entertainment division would grow 50 percent in the current quarter.

Microsoft said that Windows 7 has become the fastest selling operating system in the company's history and now runs more than 20 percent of personal computers connected to the Internet. Highlights in the recently-ended quarter included the launch of Windows Phone 7 software in 30 countries, and the completion of a deal to use Microsoft's Bing engine to power search at Yahoo! websites.

Bing's share of the search market was 12 percent at the end of the quarter and Microsoft's portion of online search and display ad revenue had grown to 23 percent, Klein said. Microsoft has been “laser beam focused” on increasing Bing's share of the market, according to Klein.

Bing began powering Yahoo! search in the US and Canada at the end of last year and is to begin handling the job in other countries. Yahoo! shares ad revenue with Microsoft under the terms of the alliance.

Microsoft said that its shift to offering software as services in the Internet “cloud” continued to gain momentum in the quarter, with film studio Pixar Animation being among the companies using its Azure platform.

The shift to Microsoft “cloud” offerings is inevitable and “once it starts to accelerate it is going to accelerate pretty fast,” Klein said. Microsoft beat Wall Street expectations for the quarter, but its stock slid slightly to $28.74 in trading that followed release of the earnings figures.

Businesses are likely to spend more on computers than consumers, with emerging markets being hotter than established ones, Klein predicted.

That represents a mixed blessing for Microsoft, because while business network gear generally costs more, prices in emerging countries tend to be about half of what they are elsewhere, according to the executive.

About 90 million personal computers were sold worldwide in the final three months of last year as slowing shipments disappointed the industry. Nearly 90 percent of corporations have begun switching to Windows 7 operating system and Office 2010 is the fastest selling version ever in that line of software, according to Microsoft.

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