Microsoft takes a $1.5 billion profit

The fiscal Q1 2007 earnings result was at the high of Microsoft's and analyst's expectations and represented an 11% year-over-year increase in earnings, now at $10.81 billion, and net profits of $3.48 billion.

The Business division, which is responsible for products such as Office, Exchange, Project and Visio, remains the main revenue contributor with sales of $3.4 billion (up from 3.3 billion in fiscal Q1 2006), followed by the Client division, which made $3.3 billion (up from $3.1 billion), mainly from the Windows operating system. Online services decreased from $565 million to $539 million. The strongest growth was seen in Server and Tools, which jumped 17% from about $2.1 billion to $2.5 billion and the firm's Entertainment Devices division, which saw revenues increase from $596 million to $1.0 billion during the quarter.

However, the balance sheet, which puts Microsoft's current warchest at just over $31 billion, is just half the story, as Microsoft's is planning to introduce a range of new products, especially Windows Vista and the Zune portable media player, in the next two quarters and especially the Entertainment Devices division will face more competition, primarily with the release of Sony's and Nintendo's next generation game consoles. To ensure a safe start of Vista, the company has announced a Vista upgrade program, which essentially locks users into a not necessarily free Vista upgrade. Microsoft estimates that, as a result of this program, $1.5 billion of revenue will be shifted from the second to teh third fiscal quarter.

The increase of revenues in the Entertainment Devices division was primarily due to an increase in demand for Xbox 36 consoles, software, peripherals, and Xbox Live, Microsoft said. According to the company, 900,000 consoles were sold during the quarter. The tally now stands at six million Xbox 360 consoles that were sold to date. For comparison, Sony expects to sell 500,000 Playstation 3 consoles until the end of the year, while Nintendo expects to sell six million Wii consoles in less than five months after launch.