Good Numbers Boost Microsoft

Net income was off about 28%. Revenue was actually up 6% but would have been up 20% without the drag of the coupons, CFO Chris Liddell said during a conference call with analysts.

The larger-than-expected deferred revenue balance indicates good acceptance of both Vista and Office and is likely a harbinger of strong sales to come for both key products, said analyst Ken Allen of T. Rowe Price. "It was an impressive quarter with strength across the business."

Indeed, sales for most of the company's business units were $100 million to $400 million above the company's projections. T. Rowe Price holds shares of Microsoft.

Microsoft executives seemed pleased with the quarter and were generally upbeat about sales of PCs, as well as of Microsoft products. "Results this quarter exceeded our expectations across the board, with revenue growth at or above our high-end guidance for all divisions," said Chris Liddell, chief financial officer at Microsoft. "Healthy PC and server markets as well as broad-based business and consumer demand for Microsoft offerings fueled revenue growth this quarter."

Revenue from the company's entertainment division, which includes the Xbox 360, rose by 75% year over year to $2.96 billion, largely on strong sales of the game console. The division's loss widened a bit to $289 million from $286 million a year ago, largely because the company still loses money on each Xbox console it sells.