Software giant and Dow Jones Industrial component Microsoft Corp. (MSFT - Free Microsoft Stock Report) reported revenue and earnings for its fiscal second quarter of $24.5 billion and $0.78 a share, versus our targets of $23.7 billion and $0.68 a share. (Fiscal years end June 30th.) The financial performance was well ahead of most investors' expectations, with MSFT shares gaining on the news, even as the rest of the stock market pulls back for a second day in succession.

The Devices & Consumer segment performed nicely in the December period, reflecting a strong showing from new game console Xbox One and improved demand for an expanding range of tablet products under the Surface brand. Meanwhile, the Windows environment was again mixed, with commercial demand remaining healthy and consumer revenues continuing to decline, albeit at a slower pace than had been forecast. Office revenues fell back in the quarter, but two-thirds of the decline was due to consumers' move to Office 365. The strength in Office 365 at the consumer level continues to be a positive, in our view. The segment's gross margin declined in the quarter, but this was expected given the release of Xbox One and a general increase in hardware unit volume.

The Commercial segment had another good quarter. Microsoft continues to show strength in corporate data centers, reflecting an improved spending environment and the ongoing move to system virtualization and adoption of cloud services. Commercial's gross margin remained quite healthy, reflecting the generally high margins accorded to software licenses.

Adding it all up, Microsoft's December-period results made for good reading, and the company should continue performing well in its fiscal third quarter. Our revenue and earnings estimates are $20.5 billion and $0.64 a share. Meanwhile, the Nokia acquisition is still slated to close soon, and the search for a new CEO to replace Steve Ballmer remains ongoing.

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 2013 were as follows: Microsoft Business, 31.8% of total; Windows & Windows Live, 24.7%; Server and Tools, 26.0%; Entertainment & Devices, 13.1%; Online Services, 4.1%; Other, 0.3%. Research & development spending as a percent of 2013 sales was 13.4%.

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