Microsoft 3Q Profit Up 35% On Strong Windows 7 Demand >MSFT


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Microsoft 3Q Profit Up 35% On Strong Windows 7 Demand >MSFT -

Microsoft Corp.'s (MSFT) fiscal third-quarter profit grew 35% as the software giant benefited from a strong response from the release of the company's Windows 7 operating system.

"Business customers are beginning to refresh their desktops and the momentum of Windows 7 continues to be strong," said Chief Operating Officer Kevin Turner. "We are also seeing tremendous interest in our market-leading cloud services for business."

Microsoft said more than 10% of personal computers worldwide were running Windows 7, making it "by far the fastest-selling operating system in history."

Shares fell 3% to $30.40 in after-hours trading, despite the company's better-than-expected results.

Microsoft is facing a number of longer-term threats to its business, including Google Inc.'s (GOOG) online Apps, which perform similar tasks to Microsoft's Office suite. The company has responded aggressively by moving to launch its Windows Mobile Phone 7 Series handsets later this year. It also won clearance from regulators to implement its Internet search alliance with Yahoo Inc. (YHOO).

For the quarter ended March 31, Microsoft posted a profit of $4 billion, or 45 cents a share, up from $3 billion, or 33 cents a share, a year earlier. Year-earlier results included 6 cents in investment write-downs and severance charges.

Revenue grew 6.3% to $14.5 billion. Microsoft noted it deferred $305 million in revenue related to Office 2010. Adjusting for revenue deferral, third-quarter revenue jumped 8% to $14.81 billion.

Analysts surveyed by Thomson Reuters projected a profit of 42 cents on revenue of $14.39 billion.

Revenue grew at four of the company's five segments, with the business division the laggard. Sales at Microsoft's client division, which makes the Windows operating system, grew 28%, as earnings climbed 35%. Server and tools sales jumped 2.4%. In online services, one of the company's smallest but potentially most important divisions, revenue increased 12%.

Ahead of the results, Global Equities Research said Microsoft's product pipeline is "extremely strong," with Windows 7 and Office 2010 being key growth drivers for the company's client division. The firm added that many of its contacts said they will upgrade Windows 7 and Office 2010 together, with the latter available to businesses starting next month. Microsoft already offers a free version online, betting that customers will pay for a version that omits advertising and gives businesses greater control over how documents are managed.

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