Broad revenue gains push Microsoft's Q3 profits up 31%

Software giant beats street forecasts, but shares drop after hours

Propelled by revenue increases in four of its five business units, Microsoft (NASDAQ: MSFT) on Thursday reported a 31 percent jump in fiscal third-quarter net income.

The software giant said in its earnings release that revenue grew in four of its five business divisions, with the largest unit -- Microsoft Business Division, which includes Microsoft Office -- increasing revenue by 21 percent and profit by 25 percent. The business division comprises 32 percent of Microsoft's overall revenue.

Third-quarter profit came in at $5.23 billion, or 61 cents a share, up from $4.01 billion, or 45 cents a share, in the year-ago quarter ended March 31. Total revenue climbed to $16.43 billion from $14.5 billion a year ago, an increase of 13 percent.

Consensus forecasts called for net income of 56 cents a share on sales of $16.19 billion.

Despite beating estimates, shares of Microsoft fell as much as 2.8 percent to 25.97 in extending trading from Thursday's closing price of 26.71. Wall Street's reaction may have stemmed from the fact that Microsoft's overall net income included a 5 cents per share tax break. Excluding that, the company merely met profit expectations.

Microsoft's business division recorded Q3 revenue of $5.25 billion, up from $4.34 billion a year ago. The unit's net profit was $3.17 billion -- 55.4 percent of the company's overall profit -- up from $2.54 billion in last year's third quarter.

The biggest revenue gain was recorded by the company's Entertainment and Devices Division -- maker of Xbox game devices and Kinect sensors -- which increased sales by 60 percent to $1.94 billion from $1.21 billion a year ago. But it's by far the smallest of Microsoft's four product divisions, generating just 11.8 percent of overall sales.

The company's second-largest revenue generator -- the Windows and Windows Live Division -- had revenue of $4.45 billion, a 4 percent decrease from last year's $4.65 billion. Net income from this unit fell 10 percent.

The Server and Tools Division had sales of $4.1 billion, up 11 percent from $3.71 billion a year ago. Profit for the unit climbed 12 percent.

Microsoft's smallest revenue generator, the Online Services Division -- which includes the Bing search engine -- gained 14 percent in revenue to $648 million from $566 million. Because of heavy promotional costs, that unit's losses widened to $726 million from last year's $709 million.

Is this enough to push Microsoft shares out of the mid-20s, where the stock has spent the better part of the past decade? No. The software giant still faces too many questions about its future in a world increasingly defined by cloud-based computing and mobile technology. Further, its stranglehold on the corporate and government sectors is being aggressively challenged by Apple and Google.

But the company is still growing revenue and profit. You have to give it that.

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