Microsoft’s quarterly profits topped Wall Street’s expectations, thanks in part to growth in the company’s server and business software divisions, but the company’s Windows unit continued to feel the effects of a sluggish personal computer market.
The company’s revenues for its fiscal second quarter, ended Dec. 31, were $20.89 billion, up 5 percent, according to results released by Microsoft this afternoon. Earnings per share were 78 cents, beating by 2 cents the consensus of analysts polled in advance by Thomson Reuters.
Microsoft had signaled potential trouble for the Windows division in advance of the earnings release, based in part on the flooding in Thailand that has impacted manufacturers of hard drives, affecting the PC supply chain. Microsoft says it believes the overall PC market decreased by 2 percent to 4 percent, including the impact of the Thailand floods.
At the same time, the rise of the iPad has been taking a toll on Windows PCs on the lower end, particularly in the netbook market. Revenue in the Windows & Windows Live Division was down 6 percent, to $4.7 billion.
In the Entertainment & Devices Division, Microsoft saw revenue rise to $4.2 billion, up 15 percent,as sales of the Xbox 360 climbed, reaching 8.2 million units for the quarter, compared with 6.3 million units in the same quater the previous year. However, the division’s profits fell 21 percent, to $528 million.
Microsoft cited a variety of factors for that decline in E&D profits, including the cost of integrating Skype following the completion of that acquisition, payments made to Nokia related to Windows Phone strategic initiatives, higher Xbox Live royalty costs, and a higher mix of Xbox 360 hardware sales vs. software, which takes a toll on the company’s profit margins.
In the Online Services Division, Microsoft’s revenue rose 10 percent, to $784 million.
The division is still deeply in the red, with a quarterly loss of $458 million. However, that was an 18 percent improvement over the $559 million loss posted in the same quarter a year ago. Microsoft is citing factors including the growth of Bing — now the No. 2 search engine, behind Google — and the rollout of its Yahoo partnership.
The Microsoft Business Division, which includes the Office products, saw revenue increase by 3 percent, to $6.3 billion, while operating profit was up 2 percent, to $4.2 billion.
Server & Tools, home to products including Windows Server and SQL Server, continues to quietly fuel the company, with revenue rising 11 percent to $4.8 billion, and profits up 17 percent, to nearly $2 billion.
Microsoft’s earnings call starts at 2:30 p.m., and you can listen via this page.