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Microsoft earnings propelled by Windows 7, PC upgrades

Fueled by Windows 7 and a strong PC upgrade cycle, Microsoft topped estimates for its March quarter. The company also said enterprises were starting to upgrade PCs.

Fueled by Windows 7 and a strong PC upgrade cycle, Microsoft topped estimates for its March quarter. The company also said enterprises were starting to upgrade PCs.

Microsoft reported fiscal third quarter earnings of $4.01 billion, or 45 cents a share on revenue of $14.5 billion, up 6 percent from a year ago (statement). Wall Street was expecting earnings of 42 cents a share on revenue of $14.4 billion for the fiscal third quarter.

The software giant noted that its third quarter revenue results included the deferral of $305 million in revenue related to Office 2010. Excluding that deferred revenue, Microsoft's sales would have been about $14.81 billion.

Here's the snapshot:

The company only provided operating expense guidance---$26.1 billion to $26.3 billion for the year ending June 30. For the fiscal fourth quarter, Wall Street was expecting Microsoft to report earnings of 46 cents a share on revenue of $15.24 billion. Microsoft operating chief Kevin Turner did note that business customers are starting to refresh their desktops.

In a statement, Microsoft gave a nod to Windows 7, but did talk up the success of Bing search and Xbox Live. However, Microsoft is really a Windows 7 story. Windows revenue was up 28 percent from a year ago. Microsoft estimated that 10 percent of all PCs are now running Windows 7.

By the numbers:

  • Microsoft's Windows and Windows Live unit reported third quarter revenue of $4.41 billion, up from $3.35 billion a year ago. Operating income surged to $3.06 billion from $2.27 billion a year ago. Clearly, Windows 7 carried the team.

  • Servers and tools delivered revenue of $3.57 billion with an operating profit of $1.25 billion. Those results were roughly flat with a year ago.
  • Microsoft's online services unit continued to bleed cash. Revenue for the third quarter was $566 million, up from $507 million a year ago. The rub: Microsoft's operating loss for its Internet business was $713 million compared to $411 million a year ago. That larger loss was due to the Yahoo search pact. Microsoft said that its general and administrative expenses increased $239 million or 26 percent, "primarily due to increased legal charges and transition expenses" related to the Yahoo deal.

  • Microsoft's business division (think Office) delivered third quarter revenue of $4.24 billion, down from $4.5 billion a year ago. Operating income for the division was $2.62 billion, making it the company's second largest cash cow.

  • The entertainment and devices division turned a profit of $165 million on revenue of $1.66 billion.