Microsoft’s Q2 net income slightly down

Microsoft revenue rose in the second fiscal quarter, while its profits dipped a bit.

Revenue for the quarter, ended Dec. 31, hit US$20.89 billion, up 5% compared with 2010’s second fiscal quarter, which included recognition of $224 million of deferred revenue related to the Office 2010 technology guarantee program.

Net income came in at $6.62 billion, or $0.78 per share, down from $6.63 billion, or $0.77 per share.

“I’m pleased with our performance this quarter. Despite a challenging PC market, we delivered solid financial results,” said Peter Klein, Microsoft’s chief financial officer, during a conference call to discuss the results. “We saw strong demand for our business products and services and had a record holiday season, driven by the unique entertainment experience we’ve built with Xbox 360.”

“We’re well-positioned for future growth,” he added.

Microsoft missed on the consensus revenue expectation of $20.93 billion from financial analysts polled by Thomson Reuters, but exceeded their earnings-per-share forecast of $0.76.

Revenue grew across all geographies, and particularly so in emerging markets, Klein said.

The company’s Business Division generated $6.28 billion in revenue, up 3% year on year, and up 7% excluding the Office 2010 recognition of deferred revenue. Almost 200 million licenses of Office 2010 have been sold since its launch 18 months ago, the company said. Exchange and SharePoint revenue grew 10%, while revenue from Lync and Dynamics CRM grew more than 30%.

Sales of Office 2010 have been exceeding the company’s internal expectations, Klein said.

The Server & Tools business had $4.77 billion in revenue, up 11%, and was helped by “double-digit revenue growth” from Windows Server and SQL Server premium editions and by more than 20% growth in System Center revenue.

Revenue shrank 6% at the Windows & Windows Live Division to $4.74 billion. More than 525 million Windows 7 licences have been sold since its launch.

Windows sales suffered from a slowdown in PC sales among consumers in particular, but the story is brighter in the enterprise market, where Windows 7 has been doing well and is installed in one-third of enterprise desktops worldwide, Klein said.

The Online Services Division’s revenue grew 10 percent to $784 million, while the Entertainment & Devices Division had revenue of $4.24 billion, up 15%. There are now about 66 million Xbox 360 consoles in the market, along with 18 million Kinect sensors. Xbox Live memberships increased 33% to 40 million.

In the Online Services Division, search advertising improved during the quarter, after a dip in the first quarter that affected Yahoo, Microsoft’s search partner. Revenue per search grew in the second quarter, and Microsoft is working hard to keep that business on track, Klein said.

Microsoft also started integrating Skype technology and services into Microsoft products during the second quarter. “While still early, we’re excited by the momentum we’ve seen this far and by the opportunities to redefine social and real-time communications for consumers and businesses around the world,” Klein said.

Looking ahead, Microsoft is revising downward its operating expence guidance to a range of between $28.5 billion and $28.9 billion for the full year ending June 30.

In the new fiscal year, Microsoft plans to introduce several new products, including Windows 8, SQL Server 2012 and System Center 2012.

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