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Microsoft earnings story updated with executive comment from the firm's conference call.



) -- Despite a 4% drop in year-over-year Windows 7 sales,



posted a solid beat of estimates for its fiscal third quarter, fueled by big Kinect for Xbox sales and the continuing rally in corporate IT business.

The one down point in the company's press release was soft Windows 7 sales, which reflect recent reports of falling consumer PC shipments. Issues likely impacting the consumer computer segment are supply chain disruptions in Japan, Window 7's maturity and slight cannibalization of margins due to tablet PCs.

The rest of Microsoft's core segments reported nice gains, with continued enterprise spending boosting its Business unit, which grew 21% year-over-year with sales of $5.2 billion, up from $4.3 billion. Microsoft said that its latest version of Office, Office 2010, continues to be the fastest-selling version in its history.

"We expect the business PC refresh cycle to continue through 2012," said Peter Klein, Microsoft's CFO, on the company's conference call Thursday after market close. "In terms of the PC market, we expect

growth in emerging markets to outpace developed markets and growth in business PCs to outpace consumer PCs.

"We delivered strong financial results despite a mixed PC environment, which demonstrates the strength and breadth of our businesses" Klein said earlier, in a prepared statement.

The division that sells Kinect -- Entertainment & Devices -- grew 60% year-over-year to nearly $2 billion in revenue, thanks to sales of the console, which Microsoft said last month has surpassed sales of 10 million units. That means consumers have bought roughly 2 million Kinects since the end of the holiday buying season.

Microsoft reported adjusted earnings per share of 61 cents on quarterly revenues of $16.43 billion. That's up from 45 cents and sales of $14.5 billion in the year-ago quarter; analysts surveyed by Thomson Reuters expected 56 cents EPS on sales of $16.2 billion.

The company's stock, which is down more than 5% year to date, was down 46 cents in after-hours trading to $26.25.

--Written by Maggie Overfelt in New York.

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