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Software giant Microsoft Corp. (MSFTFree Microsoft Stock Report) has reported revenues and earnings of $17.41 billion and $0.60 a share for the March quarter, a performance that was modestly ahead of our estimates of $17.25 billion and $0.58. Save for the Entertainment and Devices Division, wherein a soft gaming console market and slightly higher expenses weighed on results, each of the company's reporting segments showed improvement in revenues and operating performance versus the March period of fiscal 2011 (years end June 30th). The initial reaction by investors was positive, with Microsoft stock moving about a dollar a share higher in premarket trading.

As has been the case for the last year, or so, the PC market continued to advance at a modest pace, though the introduction of ultrabooks was a positive on the consumer side. Nonetheless, the enterprise arena remains the bright spot, and Windows 7 continues to be a force as corporations move through the current PC-upgrade cycle. Meanwhile, Windows 8 is on the horizon, which will give consumers more choice, given the operating system's support for a broader range of computing platforms. Accordingly, there is plenty on tap to keep the Windows and Windows Live group contributing strongly to corporate profits.

The Microsoft Business Division continues to have the Office 2010 wind at its back, with multi-year licensing revenues up some 13% in the March quarter. Adoption of productivity applications SharePoint, Exchange, and Lync also remains an important factor in the group's performance. A new version of the Office productivity suite is now coming down the pike (code name Office 15), with a technical preview being released.

Microsoft's strong presence in data centers once again was demonstrated by the performance of the Servers & Tools segment. Multi-year license revenues grew in the high-teens, while the company also noted its success in database management systems (SQL Server and SQL Server Premium) and strong customer interest in cloud computing. The service side of this business continued to track forward strongly, as well. New products and services should keep the group moving forward.

Although the Online Services Division continued operating in the red, the loss was substantially reduced in comparison with 2011. Higher ad revenues and a leaner cost structure combined to narrow the deficit.

Lastly, as mentioned above, the soft gaming console market held the Entertainment and Devices Division back, though Microsoft's Xbox remains the favorite among gamers. Meanwhile, the recent launch of a handful of 4G network smartphones incorporating Windows Phone seems to be gaining some degree of traction. Microsoft noted that developer interest in Phone has moved the number of available apps sharply higher. Whether this translates into increasing popularity for Windows Phone handsets is an open question.

Adding it all up, Microsoft had a pretty good quarter, in our view, and we have made upward adjustments to our revenues and earnings estimates for fiscal 2012. We are now looking for revenues of $74.5 billion (up $250 million), with earnings tracking forward to $2.75 a share (up $0.05). The slate of new products scheduled for release in fiscal 2013 should keep revenues and earnings advancing. As it stands now, we continue to believe this high-quality stock is a solid core holding.

About The Company: Microsoft Corp. is the largest independent maker of software. It develops and sells products for a wide range of computing devices. The company also sells the Xbox video game console. Revenue sources in fiscal 2011 were as follows: Microsoft Business, 31.7% of total; Windows & Windows Live, 27.2%; Server and Tools, 24.4%; Entertainment & Devices, 12.7%; Online Services, 3.6%; Other, 0.4%. Research & development spending as a percent of 2011 sales was 12.9%.

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.