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Microsoft baffles Windows 8 boo boys with strong first-quarter results

Microsoft may be having the last laugh with its Q1 earning's report indicating that the company enjoyed a strong uptick in sales and profits for the first three months of 2013.

The software giant pulled in revenue of $20.5 billion (£13.4bn) in its fiscal third quarter, up 18 per cent from the same period in 2012, while also reporting operating income of $7.6 billion (£4.9bn), up 19 per cent, and diluted EPS of $0.72 (47p), up 20 per cent.

"The bold bets we made on cloud services are paying off as people increasingly choose Microsoft services including Office 365, Windows Azure, Xbox Live, and Skype. While there is still work to do, we are optimistic that the bets we've made on Windows devices position us well for the long-term," Microsoft CEO Steve Ballmer said in a statement.

Microsoft's financial results are always closely watched, but never more so than in the wake of reports from IDC and other research firms that PC sales around the world have declined precipitously in recent months.

PC makers shipped 76.3 million units in the first three months of the year, a 13.9 per cent decline from the same period in 2012, according to an IDC report issued about a week ago. That's the steepest year-over-year decline since the research firm began tracking the PC market's quarterly performance in 1994, IDC said.

Many industry watchers were quick to blame supposedly sluggish demand for Microsoft's new Windows 8 operating system as a main culprit for the troubled state of the PC industry. Report after report has pointed to a slow transition to the new touch-optimised OS among consumers and businesses, but the Redmond-based company has steadily insisted that sales of Windows 8 licenses have been brisk.

Now it looks as if the numbers just may be on Microsoft's side in this debate.

The company's Windows Division reported revenue of $5.7 billion (£3.7bn), up 23 per cent from the same period a year ago, though Microsoft noted that an adjustment related to its Windows Upgrade Offer rendered the division's year-over-year sales as flat.

In fact, Microsoft enjoyed revenue growth in all of its main business units. Sales for Servers & Tools were up 11 per cent from the year-ago quarter, the Microsoft Business Division was up 8 per cent, the Online Services Division was up 18 per cent, and the Entertainment and Devices Division was up 56 per cent, with Xbox Live membership growing 18 per cent year-over-year to its current 46 million-strong user base.

"Our diverse business continues to deliver solid financial results, even as we navigate the evolving device market. Looking ahead, we will continue to invest in long-term growth opportunities to drive our devices and services strategy forward and deliver ongoing value to shareholders," said Peter Klein, Microsoft's chief financial officer.

In its earnings report, Microsoft also announced that Klein would be leaving the company at the end of its current quarter. Klein has spent more than a decade at Microsoft, including four years as CFO. His successor will be named "in the next several weeks," the company said.

"It has been a pleasure to work with Peter as CFO. He's been a key member of my leadership team and a strategic advisor to me, and I wish him the very best," Ballmer said.

Klein, who led this week's conference call with investors and analysts, said going forward Microsoft would increase its push into the tablet market with hardware partners and its own Surface-branded devices as a way to adjust to the "declining traditional PC market."