Microsoft produced a surprisingly strong quarter to start the year, pleasing investors looking forward to even bigger things from the software maker's much-anticipated overhaul of Windows operating system next fall.
The performance defied the conventional thinking that Microsoft would have trouble selling more Windows licenses as more people snapped up tablet computers, such as Apple Inc's trendsetting iPad, while other prospective personal computer buyers delayed making their purchases until the next version of Microsoft's operating system hits the market.
That didn't turn out to be the case during the three months ending in March as revenue at Microsoft's Windows division edged up by 4 per cent from last year to $4.6 billion.
Microsoft attributed the gain to an uptick in businesses who bought licenses for Windows 7. It marked only the second time in the past six quarters that Microsoft has registered a year-over-year gain in the Windows division.
"We're driving toward exciting launches across the entire company, while delivering strong financial results," said Microsoft CEO Steve Ballmer.
High hopes are riding on the revamped system, Windows 8, because Microsoft designed it to run on devices that can be controlled by touch, as well as keyboards and computer mice.
That means Windows 8 can serve a dual purpose: it could help spur the development of sleeker PCs that spur more sales and also give Microsoft a chance to grab a piece of the rapidly growing tablet computer market.
Although Microsoft hasn't announced a target date yet, most analysts believe Windows 8 will go on sale in September or October.
Microsoft Corp earned $5.1 billion, or 60 cents per share, during the period marking first three months of the year - the Washington-based company's third quarter. That was a 2 per cent decline from net income of $5.2 billion, or 61 cents per share, a year ago.
While the Windows division held up better than expected, one of Microsoft's recent strongholds weakened. The deterioration occurred in the entertainment division as Microsoft's shipments of its Xbox 360 video game console plunged by nearly 50 per cent to 1.4 million units.
The sagging demand occurred as more people are playing games on phones and tablet computers. Revenue in the entertainment division declined 16 per cent from last year to $1.6 billion.