Microsoft Marks Time

The company's business solutions arm is still relatively small, accounting for just 2% of revenue, but Microsoft has been pouring money into it and is moving quickly to integrate a fistful of separate applications into a unified business suite ultimately capable of competing with Oracle's(ORCL) applications.

The company's Xbox video-game device falls under the company's home and entertainment division, which is generally unprofitable, and contributes about 10% of total revenue. Sherlund says Microsoft still loses money on each console sold, and he doesn't expect that the Xbox -- despite estimated sales of 1.6 million units in the March quarter -- will make a contribution to earnings.

But Bernstein's Di Bona says the delay of Sony's new PlayStation 3 gives Microsoft a chance to gain market share in the space. He quotes data from market researcher NPD showing that on average each Xbox 360 owner also has purchased four games and three additional peripherals (such as hard drives or joy sticks) for the system. "We believe that stronger-than-expected demand for the very profitable games and peripherals will continue to offset much of the high cost of the hardware," Di Bona says. His company does not have an investment banking business.

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