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Microsoft disappoints investors despite strong quarter

Warwick Ashford

Microsoft has announced record revenue of $20bn (£12.6bn) for the quarter ended 31 December 2010, with Kinect exceeding expectations and Windows falling short.

Operating income was $8.17bn and net income was $6.63bn, or 77 cents a share, compared with 74 cents a year ago, driven mainly by sales of Xbox 360 consoles, the Kinect sensor, Xbox games and Xbox live subscriptions.

Revenues from the Entertainment and Devices Division grew 55% to nearly $4bn, with 88 million Kinect sensors sold in the two months following its launch.

In contrast, Business Division revenue grew 24% year-over-year, but Microsoft said demand for productivity, infrastructure and cloud products was strong, with Office 2010's licence sales over 50% ahead of Office 2007 in an equivalent period after launch.

"Windows 7 continues to be the fastest-growing operating system in history, and our recent system-on-a-chip announcement demonstrates our commitment that Windows will have the power and flexibility to run everywhere and on every device," said Kevin Turner, chief operating officer at Microsoft.

It has now sold over 300,000,000 Windows 7 licenses, and the operating system is now running on over 20% of Internet-connected PCs, but Windows revenue grew just 2% to $5.05bn, missing the $5.2bn average of analysts' estimates compiled by Bloomberg.

Analysts said Microsoft may be losing sales as customers switch to Apple's iPad or Macintosh computers rather than new Windows-based machines.

Microsoft shares slipped 3 cents to $28.74 in extended trading.

Analysts said the slight fall, despite a good quarter, shows investors are concerned about the continued erosion of sales for Windows and the potential for the same to happen to Office.


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