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Microsoft Pri0

Welcome to Microsoft Pri0: That's Microspeak for top priority, and that's the news and observations you'll find here from Seattle Times technology reporter Matt Day.

January 27, 2011 at 12:50 PM

Live blogging the Microsoft earnings call Thursday at 2:30 p.m.

Come back here for a live blog of the Microsoft second-quarter earnings call on Thursday at 2:30 p.m.

1:30 p.m. Here is the summary of the Q2 numbers.

Microsoft reported quarterly sales well above expectations on Thursday, following a strong holiday season fueled by the success of the Kinect motion sensor for the Xbox video game system. Earnings for the quarter ended Dec. 31 were 77 cents a share vs. 74 cents in the same quarter the year before. Analysts were expecting a profit of 68 cents a share.

The company reported a profit of $6.6 billion, a 0.4 percent decline from $6.7 billion a year ago. Sales for the quarter — the second in the company’s fiscal 2011 — were $20 billion, compared with $19 billion a year ago, an increase of 5 percent. Analysts had been expecting sales of $19.1 billion.

Adjusted for the Windows 7 upgrade program a year ago, sales increased 15 percent and profit increased 28 percent.

“We are enthusiastic about the consumer response to our holiday lineup of products, including the launch of Kinect. The 8 million units of Kinect sensors sold in just 60 days far exceeded our expectations,” said Peter Klein, chief financial officer at Microsoft. “The pace of business spending, combined with strong consumer demand, led to another quarter of operating margin expansion and solid earnings per share growth.”

The Microsoft Business division, which makes Office, also had strong growth, with sales increasing 24 percent.

Microsoft’s stock closed at $28.87 Thursday.

2:19 p.m. Here is how Microsoft’s divisions performed in the quarter.

Windows.The Windows division reported sales grew 3 percent, adjusted for a Windows 7 sales deferral, to $5 billion. Operating profit for the quarter was $3.3 billion. The financial adjustment for the Windows 7 upgrade program subtracts the sales of Windows in the months before the 2009 launch that were recorded in the second quarter of fiscal 2010. The company has sold 300 million copies of Windows 7 since it launched in October 2009.

Business. The division that makes Office had significant growth in the quarter, with sales increasing 24 percent to $6 billion. This was the first holiday season after Office 2010 came out. Operating profit grew 35 percent to $4 billion.”Office 2010 is 50 percent ahead of Office 2007 in terms of consumer adoption in a comparable time period,” said Todd Setcavage, director of investor relations at Microsoft. “That’s the fastest version of Office we’ve ever sold.”

Server and Tools. The group that makes Windows Server, SQL Server and Azure saw sales grow by 10 percent to $4.4 billion. Operating profit increased 21 percent to $1.8 billion.

Online Services. Sales in the division that works on Bing and MSN recorded sales growth of 19 percent to $691 million. The group’s operating loss widened 17 percent to $543 million. The company said online ad sales grew 23 percent as a result of growth in search traffic.

Entertainment and Devices. Sales grew 55 percent to $3.7 billion and operating profit grew 86 percent to $679 million. The group makes the Xbox 360 and mobile software and launched the Kinect motion sensor and Windows Phone 7 during the quarter. Microsoft sold 8 million Kinect units in the quarter and shipped 2 million copies of Windows Phone 7 to wireless carriers

2:28 p.m. Here is the link to the webcast if you want to listen to the Microsoft earnings call for analysts.

2:31 p.m. Call is starting.

2:33 p.m. Peter Klein, chief financial officer said, “I’m extremely pleased with our perf this quarter. We delivered excellent top line and bottom line results.”

2:35 p.m. Windows Phone 7 is on nine phones on 60 operators in 30 countries, Klein said. We are committed to its long-term success, he added.

2:37 p.m. “Kinect is the fastest selling consumer electronics device in history,” Klein said.

2:38 p.m. Microsoft said on the call, “Nearly 90 percent of enterprise companies have started their formal migration to Windows 7.” (Windows division sales grew 3 percent in the quarter compared to a year ago.)

2:40 p.m. Sounds like iPads are having an impact. Bill Koefoed, general manager for investor relations, just said, “Within consumer PCs, netbooks declined from their peak last year while notebook growth remained healthy.” PC sales in the quarter grew two to four percent.

2:44 p.m. Online Services division revenue now includes shared ad revenue from Yahoo-Bing partnership. Mexico, Brazil and Australia search ad systems were converted in the partnership this month.

2:46 p.m. Lync, the rebranded new version of unified communications software that came out in the second quarter, grew 20 percent.

2:47 p.m. Microsoft sold 6.3 million Xbox 360 consoles in the quarter and Xbox Live memberships grew 30 percent.

2:50 p.m. Klein is back. “We expect the business PC refresh cycle to continue.”

2:52 p.m. Klein expects Entertainment and Devices division that makes Xbox to grow sales 50 percent in the current quarter.

2:53 p.m. Q&A is beginning with analysts.

2:55 p.m. Analysts are asking about questions about business projections, like why is the Microsoft Business division sales growth outpacing PC growth and will that continue.

2:59 p.m. Microsoft just confirmed that tablets are affecting PC sales. The analyst from Jefferies just asked whether tablets are cannibalizing PCs. Peter Klein said, “Bill [Koefoed] talked a little bit about netbooks and how netbooks hit their peak last year in Q2. What we’ve seen in course of this year in consumer space some of their volume being replaced by ultraportables and tablets. Normally these are secondary devices. That’s caused a little bit of drag on the consumer side.”

3:05 p.m. Margin expansion, annuity, multi-year contract renewal questions… They are asking the CFO for hints around Microsoft’s internal sales projections for the next quarter without coming straight out and asking for it.

3:07 p.m. A little nugget from earlier in the call: Microsoft was overwhelmed with interest in the beta for Office 365, Microsoft’s cloud version of Office and competitor to Google Docs.

3:10 p.m. There were a few more questions about cloud momentum. And now the call is ending. Thank you for joining us.

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