Microsoft's second quarter Kinects

Microsoft reported much better-than-expected fiscal second quarter results as it sold 8 million Kinect Xbox sensors and rode demand for Office 2010.

The software giant reported second quarter earnings of $6.63 billion, or 77 cents a share, on revenue $19.95 billion, up 5 percent from a year ago. Wall Street was expecting 68 cents a share on revenue of $19.15 billion. The release was issued a bit before market close.

As for the outlook, Microsoft reaffirmed its expense guidance for fiscal 2011. Here's a look at Microsoft's assumptions for the third quarter and fiscal year.

It's an odd quarter for Microsoft as the best storylines aren't focused on Microsoft's bread-and-butter franchises---Windows and Office. This quarter was really more about the budding businesses Microsoft is hoping can diversify the company.

Here's how the upstart businesses did during Microsoft's quarter:

• The entertainment and device divisiondelivered second quarter operating profit of $679 million on revenue on $3.7 billion. For context, that same division reported operating income of $365 million on revenue of $2.4 billion. That's boost---and Microsoft's better-than-expected quarter---boils down to Kinect. "The 8 million units of Kinect sensors sold in just 60 days far exceeded our expectations,” said Peter Klein, chief financial officer at Microsoft.

• Microsoft's Online Services Division, think Bing, saw a revenue pop, but just lost more money than a year ago. Microsoft's Internet unit reported a loss of $543 million on revenue of $691 million, up from $579 million a year ago.
• According to the company, developers are adding 100 apps to the Windows Phone 7 marketplace a day. However, Microsoft's Windows Phone 7 sellthrough remains a bit of a mystery. Earlier on Thursday, AT&T gave Windows Phone 7 a passing mention, but that's it.

With that tour of Microsoft's future out of the way, the stalwart Windows and Office units delivered most of the gains for the quarter. Microsoft's Business Division, also known as Office and SharePoint, delivered operating income of $3.96 billion on revenue of $6.03 billion, up 24 percent from a year ago. The Windows and Windows Live unit delivered operating income of $3.25 billion on revenue of $5.05 billion. Simply put, Microsoft's cash cows are doing just fine.

And Microsoft's servers and tools business also did well with second quarter operating income of $1.77 billion on revenue of $4.39 billion.