Microsoft beats expectations for Q2 with strong sales of Xbox Kinect and Office 2010

Jan 28, 2011

Microsoft handily beat Wall Street's expectations, posting record revenue: nearly $20 billion in its second quarter.

The company says the strong financial report was fuelled by rebounding business demand, as well as swift sales of the Kinect motion controller for its Xbox 360 video games. 

Xbox sales booming

Microsoft says it sold 8 million Kinect motion controllers in just 60 days this past holiday season, far exceeding the company’s expectations, as well as Wall Street's.  

Its Xbox Live service has reached 30 million members, up from 23 million at the same time last year.

Business demand rebounding

And the company says businesses that have stared spending again on technology upgrades are buying record numbers of Office 2010, which is now its best selling version ever of the popular software suite. 

According to Seattle's Microsoft reporter, Nick Eaton, the Office division led all five business divisions in revenue with $6 billion, keeping nearly $4 billion of that as operating income. And Microsoft said Office 2010 is being purchased at a rate 50 percent faster than Office 2007.

The new Windows 7 operating system was also a hit.  Microsoft says it has now sold more than 30  million licenses for Windows 7.  The company estimates that twenty percent of all PCs connected to the Internet are now running Microsoft's latest operating system.

Lagging results for mobile devices and search

Weak spots in the earnings release are the results for online services, search and mobile phones. MSN and Bing posted a loss of more than half a billion dollars. 

And missing entirely from this latest financial report was data on the Windows 7 phone.  It launched last fall in North America, Europe and Australia.  Microsoft says they've sold 2 million of the devices since launch to mobile phone companies, but still have "a long road ahead" to reach success in that arena. 

But the big news of the release was Microsoft's success with the Kinect, accoring to Seattle Times technology reporter Sharon Pian Chan:

"I think it's a real game-changing product in my mind," says analyst Sid Parakh.

Parakh goes on to say, "It's not a fad element that comes and goes. The broader message here is there are other applications of this technology in the mainstream that the company should be able to leverage in the future."

Financial outlook rosier

A number of technology analysts raised their outlook for Microsoft Friday after the earnings report, but as the AP reports,  some warned that competition from tablet computers is a looming threat.  Before the market opened, shares in Microsoft Corp. had risen 6 cents to $28.92.