Microsoft’s Xbox, Office and Windows Server businesses helped the company overcome a down quarter for the Windows PC market. The company just posted revenue of $16.43 billion for the quarter ended March 31 (up 13%), and profits of 61 cents per share (up 36%) — topping Wall Street’s expectations on both counts.

The company also gave the first hint of the financial impact to come from the across-the-board compensation increases announced last week by Microsoft CEO Steve Ballmer for the next fiscal year. Operating expenses are projected to rise by about 3 percent to 5 percent, to at least $28 billion, in fiscal 2012, which begins in June.

Despite Microsoft posting higher profits than expected, $5.23 billion in net income, Apple was more profitable for the quarter — posting $5.99 billion in net income in its recent report. That’s a first, and a sign of Apple’s ongoing rise on the wings of the iPad and iPhone. [Update: My mistake, it’s not a first — it last happened in 1991. (Thanks, Charles.)]

Microsoft’s Entertainment & Devices Division continued to  benefit from the Kinect motion sensor for the Xbox 360, which has also been helping to drive sales of the game console. The company shipped 2.7 million Xbox 360s during the quarter, up from 1.5 million in the same quarter a year ago, according to its quarterly filing with the SEC. Total Kinect shipments were 2.4 million for the quarter.

Revenue in the E&D Division rose 60 percent, to $1.9 billion. Profits were up 50 percent, to $225 million.

The slump in the Windows business had been expected, after recent research data showed a decline in PC shipments for the quarter. Revenue in the Windows & Windows Live Division was down 4 percent, to $4.4 billion, and profits slumped 10 percent, to $2.8 billion.

In its quarterly filing, Microsoft indicated that the consumer PC market was the primary culprit for the decline — pointing in particular to a 40 percent decline in netbook sales in the consumer market. That’s more evidence of the iPad’s impact on the market. Many consumers are opting for the Apple slate rather than Windows-based netbooks to fill the gap between the PC and the phone.

The Microsoft Business Division was helped by strong sales of Microsoft Office 2010. Revenue was up 21 percent, to $5.3 billion, and profits were up 25 percent, to $3.1 billion. The comparison to the prior results was boosted by a $305 million deferral of revenue from the same quarter a year ago, due to Office upgrade promotions that were run at the time.

In the company’s Online Services Division, revenue rose 14 percent, to $648 million, but the loss widened to a whopping $726 million for the quarter. Microsoft credited strong online advertising revenue for the increase in the top line, and blamed the larger loss on costs associated with its Yahoo partnership and efforts to acquire new online traffic.

Revenue climbed 11 percent in the stalwart Server & Tools business, to $4.1 billion, and profits rose 12 percent, to $1.4 billion. Microsoft credited Windows Server, SQL Server and Enterprise Client Access License Suites.

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  • Guest

    Congratulations to Microsoft on another excellent quarter!

    • Mark

      So excellent that the stock dropped 5% the next day.

  • Victor

    The numbers tells a slow bleed right now for the PC business, but one has to wonder when is the collapse coming. Just look at RIMM’s report today and see how their core business is collapsing. MSFT is more diversified than RIMM, but the outlook isn’t rosy.

  • Mr. John Darwin Kurc

    Fire Steve Ballmer! He is bringing the company down.

  • Sammy Clark

    Microsoft diversifcation is astounding when compared to its tech peers. With Nokia partnership, Bing market share gains, and Azure the future is bright.
    For tablets, the hardware vendors will follow the same path as the netbooks. Would you buy an Acer Linbus Linux Lite or a Windows Netbook for the same price? Soon the question will be an Android or Windows tablet for $ $199 to $299 ? That will be the end of Apple’s dominance in tablets.
    I would be a buyer of MSFT now in a big way. The next 20 years will see their diversification catapult their business to unmatched levels.

    • Plist

      Oh god. You’re a real person, aren’t you. You genuinely believe these things.

    • Anonymous

      Did you know that the consumerist action of only buying based on price rather than quality is a cultural nuance almost exclusively found in North America? No one will buy a piece of shit tablet when an iPad is sitting next to it at Best Buy.

      • John Craven

        Have you seen the Bing iPad app. It is super slick. Someday soon it will be on a $199 tablet at Best Buy next to the iPad. Apple will be the greatest short in tech stock history.

    • Less crazy than Sammy Clark

      Bing marketshare gains? You realize that the Online Services Division is losing the company hundreds of millions of dollars per quarter, right? And that a successful Windows tablet will not happen until at least after Windows 8 releases? And that a successful Windows tablet will require complete rewrites/rethinking of all apps available, completely eliminating the only advantage Windows has (enormous software compatibility)?

      • KindaTiredofApple

        Sammy may be right.

    • victor

      Isn’t MSFT trying to play catch up in all these areas? I fail to see how you can be so optimistic.

  • Swift2

    Very interesting that the last time this happened, it was 1991. Didn’t Windows come around at this time? It’s happening now, but the directions are reversed. Apple out-earned Microsoft as it was going down and now when it’s going up fast. I myself would like to see lots of companies doing what Apple does: being responsible for their full product, hardware and software. That’s when the competition would be on a level field.

  • Julie Chen

    Amazon’s Cloud crash destroyed customer’s data. Wow, I wouldn’t write off the PC just yet. How much of my data can I store on a 64GB iPad and tell me how I back it up ? Even as a consumer, I get the sense the iPad is a fad. Everytime I fly, I see the airplane full of old white guys (Baby Boomers) with iPads using single finger keying. Not sure it is a hit with the youth so maybe the future isn’t tablets. I do see kids everywhere texting on their phones.

    • victor

      You are hilarious.

    • Anonymous

      Just the fact that Baby Boomers have been coerced to embrace a new piece of technology is demonstration enough that the iPad will continue to do very well.

    • nshungnbung

      Please make some more jokes. Love to read comments like yours.

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