Surprising Windows Growth Helps Microsoft Beat The Street

Steve Ballmer punchingBiff! Bang! Boom!

Photo: AP

Microsoft had a nice quarter: it just reported EPS of $0.60 on revenue of $17.41 billion.The street was expecting $0.58 on $17.18 billion.

The stock’s up about 3% after hours. That continues the big run the stock has had this year — up more than 30% since November.

Most surprisingly: Windows revenue was up 4% from the previous year. That’s a reversal of trends seen in recent quarters, and could signal a recovery in the PC market — Gartner and IDC both said PC unit sales were up about 2% last quarter.

It’s especially surprising given that Windows 8 is coming next year — usually people delay purchases of new PCs ahead of a new version of Windows.

But the Entertainment & Devices group (mostly Xbox) saw a big drop from last year — revenue was down 16% to $1.62 billion, and it lost $229 million. Maybe the shine has finally started to come off Kinect.

The stock has been on a nice run for the last few months, rising almost 30% since November 2011. Analysts were pleased with the company’s diversity last quarter — other businesses grew enough to make up for a slowdown in Windows PC sales.

Here are the details versus expectations. EPS and revenue are consensus expectations; the other numbers come from analyst Brent Thill at UBS, who’s covered the company for many years:

  • EPS: $0.60 vs $0.58 expected
  • Revenue: $17.41B vs $17.18B expected
  • Operating income: $6.37B vs $6.0B expected
  • Net income: $5.11B
  • Windows: $4.62B revenue vs $4.31B expected, $2.95B operating income.
  • Business Division (mostly Office): $5.81B revenue vs $5.56B expected, $3.77B operating income.
  • Server & Tools (infrastructure software): $4.57B revenue vs $4.52B expected, $1.74B operating income.
  • Entertainment & Devices (mostly Xbox): $1.62B revenue vs $2.11B expected, and a ($229m) operating loss.
  • Online (mostly Bing): $707m revenue vs $739m expected, ($479m) operating loss.

Here’s our live blog of the earnings call:

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