Microsoft scores with Windows 7

San Francisco - Microsoft said on Thursday that second-quarter net profit hit a record $6.66bn on unprecedented revenue driven by demand for the new Windows 7 operating system.

Microsoft reported that its revenue surged 14% to $19.02bn in the fiscal quarter that ended December 31.

"We saw record revenue and record profit, driven by strong demand for Windows 7 and PCs (personal computers)," Microsoft chief financial officer Peter Klein said during a conference call with analysts.

The net income amounted to 74 cents per share of stock in a 57% jump from the same quarter a year earlier.

Microsoft said it has sold or licensed more than 60 million copies of Windows 7, which launched with Windows Server 2008 R2 software in late October.

Microsoft's new-generation Windows 7 operating system hit the ground running on October 22, with US sales in its opening days blasting past those of its Vista predecessor, according to NPD Group.

Pressure was on Microsoft for a Windows 7 success after the disappointment of its previous generation operating system Vista.

Technology analysts and users overall praised Windows 7 as a significant improvement on the much-maligned Vista.

While computer users may not give much thought to the operating systems that serve as the brains of their machines, they are at the heart of Microsoft's global software empire that runs more than 90% of the world's computers.

Microsoft apparently learnt a lesson from Vista and worked closely with computer makers, users and software developers while crafting Windows 7.

"What we are finding is people want Windows 7 on all devices in all form factors," Klein said.

Off-the-shelf sales of Windows 7 brought in about $500m in the quarter, trouncing a prediction Microsoft CEO Steve Ballmer made when the software was released.

"On the consumer side we had a very good retail quarter," Klein said. "A little more than we expected, people are actually going out and buying shrink-wrapped Windows 7 to put on their PCs."

The consumer-orientated side of Microsoft's technology empire drove the quarter's strong showing, while businesses continued to be tight with spending, according to Klein.

"With Windows 7 we have tremendous consumer momentum and a great product for the enterprise market when it recovers," Microsoft general manager of investor relations Bill Koefoed said during the conference call.

Software sales grew at double-digit percentages in emerging markets while climbing "single digits" in mature markets, according to Microsoft.

Klein predicted business spending on information technology will improve this year.

"IT spending should improve from the recessionary levels of 2009," Klein said. "We expect the business hardware refresh cycle to begin this year and continue gradually for several years."

Tough economic times have lengthened the time businesses stick with older computer technology before "refreshing" operations with newer equipment, according to Microsoft.

The outlook is promising for online advertising and Microsoft is sticking with its hope that a deal for its new Bing internet search engine to handle queries at Yahoo! websites will be approved by regulators.

"It is a long-term process," Klein said of getting clearance for the Microsoft-Bing deal.

Yahoo! and Microsoft unveiled a 10-year web search and advertising partnership in July.

Under the agreement, Yahoo! will use Microsoft's search engine on its own sites while providing the exclusive global sales force for premium advertisers.

"Bing is continuing to gain market share; what we really need to do is get the Yahoo! deal done and get that integrated."

December was the seventh month in a row of modest gains in search share for Bing, which Microsoft unveiled in June accompanied by a $100m advertising campaign in a bid to challenge search juggernaut Google.

- AFP