Windows 7, Office 2010 Helped Boost Microsoft Quarterly Revenues

Microsoft reported strong results for the fiscal quarter, buoyed by strong sales of Windows 7 and Office 2010. But smartphones remain a looming question.

Microsoft announced strong results for its first fiscal quarter of 2011, with revenues of $16.20 billion and net income of $5.41 billion. That represents a 25 percent rise in revenues over the same quarter last year, when the company was combating the fallout of a massive global recession.

Net income increased year-over-year by 51 percent, buoyed by strong sales of Windows 7 and other flagship products. Some 240 million Windows 7 licenses have sold in the year since the operating system's release.

"This was an exceptional quarter, combining solid enterprise growth and continued strong consumer demand for Office 2010, Windows 7, and Xbox 360 consoles and games," Microsoft CFO Peter Klein wrote in an Oct. 28 statement released ahead of the earnings call.

Microsoft's shipments of servers and business PCs grew, but executives on the company's Oct. 28 earnings call seemed interested in highlighting consumer sales.

"Consumer demand for Office 2010 and Xbox were outstanding," Bill Koefoed, Microsoft's general manager of Investor Relations, told media and analysts during the call. "We see a strong pipeline of innovations from our partners for new form factors."

While Microsoft claimed year-over-year growth in all business segments, it still relies heavily on traditional product lines such as Windows and Office for the lion's share of its revenue. Despite an "all in" strategy with regard to the cloud, and additional clients for its Windows Azure platform, the company's online-services initiatives have yet to generate substantial cash flow. Nonetheless, online advertising grew 13 percent, and Bing's market share continues to increase in the wake of Microsoft's deal with Yahoo to power the latter's back-end search.

Microsoft also claimed that revenues for Office 2010, the latest version of its productivity software, grew 15 percent for its first full quarter on the market. In addition, company executives suggested that businesses continue to engage in a PC refresh cycle.

"We are seeing improved business demand and adoption," Microsoft COO Kevin Turner wrote in an Oct. 28 statement. "Our enterprise agreement rates were strong, reflecting business commitment to Windows 7, Office 2010, and our server and database products." On the customer side of the equation, he added, "Demand and excitement for our cloud and commercial online services continue to grow."

Microsoft faces another challenge in coming months with the release of its Windows Phone 7 platform, which the company hopes will help it reverse its declining market share in mobile. In an Oct. 28 speech at Microsoft's Professional Developers Conference, CEO Steve Ballmer suggested that Windows Phone 7 could capitalize on what he described as a still-nascent smartphone market.

"We're early; there's no question we're early," he told the audience, according to "I think we kind of nailed it. When you see it, you just go, 'Oooh.'"

Ballmer also reiterated Microsoft's commitment to mobility. "Make no mistake about it, we're all in," he reportedly said. "I get all kinds of questions about, 'What if you don't do this or that,' or blah, blah, blah. Boom, baby, that's what we're going to do."

AT&T plans to push its first two Windows Phone 7 devices onto the U.S. market Nov. 8. Other carriers will release their own smartphones in coming months. Given the tech industry's trend toward mobility, the success of those devices is paramount to Microsoft's future balance sheets.

"Microsoft had a very good quarter. Windows is doing well. Office is doing well and servers and tools are doing well," Toan Tran, an analyst with Morningstar, wrote in an Oct. 28 statement reprinted on Reuters. "It's hard for Microsoft to get investors excited about the story because they missed out on a lot of things. They missed out on search, on mobile."

Despite those positive quarterly numbers, Tran added, "investors are looking toward the future and saying Microsoft missed out on these big opportunities, and their business could be disrupted."