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Microsoft Sets Quarterly Revenue Record, but Online Lags

Gaming division climbed 30 percent

Microsoft CEO Steve Ballmer is shown as a Kinect avatar on a large screen during his keynote speech at the 2011 CES | Photo: ROBYN BECK/AFP/Getty Images

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Consumers may be drifting from the PC software that has long been core to Microsoft's business, but enterprise sales appear to be going strong.

Boosted by an appetite for the tech giant's business desktop products, the Redmond, Wash., company reported record quarterly and annual revenues on its earnings call Thursday.

Net income for the quarter jumped 30 percent to $5.87 billion, while revenue for the quarter climbed 8 percent to $17.37 billion, the company said.  For the fiscal year, which ended June 30, 2011 for Microsoft, the company reported revenue of $69.94 billion, which marks a 12 percent increase over the previous year.

"We closed the year with terrific sales execution as enterprises furthered their commitment to our Windows, Office, and server products," said Peter Klein, Microsoft's CFO.

On the call with analysts, executives said enterprise deployments for Windows 7 are up 50 percent since March and that several of its business applications have grown by double digits.

But while enterprise interest has been especially healthy, consumer sales have waned.

Bill Koefoed, general manager for investor relations said the unit responsible for Windows and Windows Live reported a 1 percent decline in revenue, which he attributed to a 2 percent decline in the worldwide consumer PC market.

Meanwhile, the online services division, which includes Bing and MSN, saw a 17 percent revenue gain, but still managed to record a $728 million operating loss, pushing the total red ink on the unit to $8.5 billion in the nine years its income has been reported separately.

As consumers increasingly shift to mobile devices, such as smartphones and tablets, analysts say PC-world giants like Microsoft will have to follow.

On that front, the company said that it would release a new Windows phone (it previewed Mango in May). The new phone features multitasking, deeper social experiences, and an integration with its new cloud offering, Office 365.

It also mentioned new manufacturing partnerships, as well as launches on Verizon and Sprint and signing an alliance with Nokia.

One area, however, that continues to draw consumer attention is gaming, and this quarter it did not disappoint.

Revenue for the entertainment and devices division (which includes Xbox and Kinect) grew 30 percent, the company said, with more than 1.7 million consoles sold in the quarter.

In search, Microsoft said Bing is continuing to increase its market share and will be further helped by a growing relationship with Facebook.

The company also referenced its recent agreement to acquire Skype, which it said would drum up new business and revenue opportunities in both consumer and enterprise areas.