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Microsoft posts record Q4 and annual results despite falling Windows sales and share price

Warwick Ashford

Microsoft has posted record fourth-quarter revenues of $17.37bn for the quarter ended June 30, 2011, an 8% increase from the same period of the prior year and ahead of analyst expectations of $17.25bn, despite weak sales of its Windows operating system.

Operating income was $6.17 billion, up 4% on the same period the previous year, net income was up 30% at $5.87bn, and earnings per share for the quarter were $0.69 per share, up 35%.

For the fiscal year ended June 30, 2011, Microsoft reported record revenue of $69.94bn, a 12% increase from the year before. Operating income of $27.16bn was up 13% on the previous year, net income was up 23% at $23.15bn and diluted earnings per share for the year were $2.69, an increase of 28%.

"Throughout fiscal 2011, we delivered to market a strong line-up of products and services which translated into double-digit revenue growth, and operating margin expansion," said Peter Klein, chief financial officer at Microsoft. "Our platform and cloud investments position us for long-term growth."

While Microsoft's entertainment and devices division was the strongest performer, the company's core Windows division was the weakest.

Revenue for the Windows and Windows Live division declined 1% for the fourth quarter and 2% for the full year, while the entertainment and devices division grew 30% for the fourth quarter and 45% for the full year, due to the ongoing momentum of the console Kinect and Xbox Live.

It is the second consecutive quarter that Microsoft's Windows revenue has fallen, a trend that Microsoft executives expect to continue because of the weakness in PC sales, according to the New York Times. The division's fortunes are closely tied to PC sales, which worldwide grew 2.6% in the quarter, according to IDC, the market research firm.

The shifting demand toward tablets is worrying for Microsoft, the NYT said, because most tablets run on Apple's operating system or Google's Android software.

Microsoft business division revenue for the fourth quarter grew 7% and 16% for the full year, with Office 2010 continuing to be the fastest-selling version of Microsoft Office, at over 100 million licenses sold.

Server and tools revenue grew 12% for the fourth quarter and11% for the full year. Windows Server, System Center, and SQL Server continued to drive revenue growth in the segment.

The online services division revenue grew 17% for the fourth quarter and 15% for the full year, mainly due to increases in search revenue.

"We continue to see strong business demand across all of our products, from small businesses all the way up to the largest global enterprises," said Kevin Turner, chief operating officer at Microsoft. "Our move to cloud services continues with the release and momentum of Office 365 and growth in Windows Azure."

In its business outlook, Microsoft confirmed its guidance for the new fiscal year of 3% to 5% growth.

Despite the record results, Microsoft shares fell more than 1% in extended trading before recovering to be flat at $27.07.


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