Microsoft Quarter Strong on Windows, Office Sales

SEATTLE, Oct 28 (Reuters) – Microsoft Corp (NASDAQ:MSFT) beat Wall Street’s expectations with a 51 percent jump in quarterly profit, as higher sales of its flagship Windows and Office software knocked down fears Apple Inc’s (NASDAQ:AAPL) iPad would take a bite out of its main business.

Its shares, down 14 percent this year, rose 3 percent in after-hours trading. Despite doubling sales and profit in the last eight years, Microsoft’s stock has largely languished at the same level, as investors worry about its ability to counter new rivals such as Google Inc (NASDAQ:GOOG) or adapt to new ways of computing.

The quarterly profit growth was helped by the launch of the latest blockbuster Halo video game, but exaggerated by the deferral of some Windows revenue in the year-ago quarter and flattered by comparison to last year, when the economy was only just emerging from the downturn.

Microsoft’s Windows 7 has sold a record-breaking 240 million copies since its launch a year ago and its Office suite of applications, which debuted this spring, is off to a strong start.

"The reports of the death of Windows and Office are premature — the company is still a cash flow machine," said Colin Gillis, an analyst at BGC Financial. "People are buying about $10 billion worth of Windows and Office this quarter. The twin engines of Microsoft are still firing."

Between them, the Windows and Office units accounted for more than 60 percent of sales and more than 80 percent of profit, factoring out nonoperating losses.

Wall Street generally expects Windows and Office sales to track sales of PCs, suggesting growth of about 7 percent in the current quarter.

Online Losses

Microsoft’s online services division, which contains the Bing search engine and MSN portal, was the weakest point in the company’s quarter, with its loss widening 17 percent to $560 million. The unit, which is investing heavily in an attempt to catch up with search advertising leader Google and now powers Yahoo Inc (NASDAQ:YHOO) Web searches, has lost $6 billion in the last five years.

"I hate to nit-pick too much, but we’d always like to see the online services business do even more than it does," said Andrew Miedler, an analyst at Edward Jones, pointing out that revenue growth at the unit was slow despite a broad-based recovery in ad spending.

"We’d like to see even more great things out of the online division because Microsoft needs another pillar down the road, and online ads is a market that’s big enough."