Halo, Office fuel MS profits

01 November 2010

NEW YORK: Fuelled by strong sales of its flagship Windows and Office products, Microsoft has beaten expectations with an impressive 51% jump in quarterly profits.

Despite fears that the rival Apple iPad would take a chunk out of Microsoft's core business, the Windows and Office units accounted for more than 60% of sales and more than 80% of profit during the period.

The increase in the latest quarter's profit was  helped too by the launch of the company's latest blockbuster video game, Halo.

"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 (€7.1bn; £6.2bn) worth of Windows and Office this quarter ... the twin engines of Microsoft are still firing." 

Microsoft's profits have also been boosted by the deferral of revenue relating to the launch of Microsoft's long-awaited Windows 7 operating system.

Microsoft's online services division, which contains the heavily-advertised Bing search engine and the MSN portal, was the weakest point in the company's quarterly figures, reporting a loss of $560 million.

The unit, which is investing heavily in an attempt to catch up with search advertising leader Google, and which now powers Yahoo web searches, has lost several billion dollars in the last few 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 clear recovery in US 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," he added. 

The company had not seen any adverse effect on sales of computers running Windows due to Apple Inc's popular iPad tablet device, which is close to selling 8 million units, said cfo Peter Klein.

"We haven't seen that at all," he added. "Analysts who have done research on it, largely think this (the tablet market) is additive to PC markets as opposed to instead of PCs."

Data sourced from Reuters; additional content by Warc staff