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Microsoft announces Q2 earnings: $6.63b profit, Xbox revenue up 55%, Windows down 29%

Nilay Patel
01.27.11
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Microsoft just announced it's had itself a solid second quarter, posting an $6.63 billion profit on record revenues of $19.95 billion. That's more or less about the same as last year, when it racked up a $6.66 billion profit on $19 billion in revenue -- and while the numbers look stable and Redmond managed to slightly beat estimates, things are changing fast underneath the bottom line: strong Kinect and Xbox 360 sales drove Entertainment and Devices Division revenue up 55 percent to $3.6 billion, but Windows and Windows Live revenue fell nearly 30 percent to $5.05 billion. That means the revenue gap between Microsoft's consumer device business and the Windows business is now just some $1.3 billion, compared to $4.8 billion this time last year -- and it undoubtedly explains why Xbox got top billing at Ballmer's CES keynote this year, after traditionally being ignored, and why Microsoft is moving Windows to ARM as the mobile and tablet spaces heat up.

As for Windows Phone 7, there's nary a peep, even though Microsoft was just crowing about moving 2 million licenses yesterday -- we're taking that to mean the infant OS hasn't had any meaningful impact on revenue yet. We're going to jump on the call at 5:30PM ET, we'll let you know if anything good happens.

Update: Corrected the profit numbers: it's a $6.63b profit and a $8.17b operating income, not a $8.17b profit.

Update 2: As noted by our friend Michael Gartenberg, Microsoft's Q210 Windows division revenue was boosted by the inclusion of $1.71 billion in deferred Windows 7 upgrade sales and OEM pre-sales, so if you take those out, the gap between Windows and Xbox went from 3.1 billion in Q210 to 1.3 billion this quarter, and Windows sales are down 8 percent. It's not a huge change for the big picture, but it's worth noting the revenue deferral in context -- Microsoft moved cash around so it would have a huge launch quarter for Windows 7, and now things are evening out.

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