Microsoft beats Street's estimates

SAN FRANCISCO: Microsoft on Thursday beat Wall Street's second-quarter sales and profit forecasts, buoyed by sales of its Xbox One console and an uptick in its Surface tablet line during the holiday period.

Analysts were expecting Microsoft to report net income of $5.8 billion on $23.7 billion in revenue for the quarter, according to the survey of estimates from Thomson Reuters.The software giant reported net income of $6.6 billion on $24.5 billion in revenue.

Microsoft beat the earnings-per-share estimates of 68 cents by a dime. Shares of Microsoft surged 4.6%, at $37.71, in after-hours trading following the news.

Outgoing CEO Steve Ballmer, who announced he'd step down by August, said in a statement the Redmond, Wash.-based company's devices and consumer segment had a "great holiday quarter."

Surface revenue rose to $893 million in the quarter, up from $400 million in the three months through September, as the company benefited from a summertime price cut to its first-generation models, unveiled the Surface 2 and expanded the number of places it is sold at retail.

Analysts continue to question the company's focus on manufacturing hardware. Microsoft plans to complete its $7.4 billion acquisition of Nokia's phone business and patent rights early this year, but the Finnish phone maker reported earlier in the day that its smartphone sales plummeted 29% in the December quarter despite releasing new Lumia models.

"I would call it a Herculean challenge to turn around that mobile business," said Daniel Ives, senior technology analyst with FBR Capital Markets. "They have a lot of wood to chop ahead."

The company withstood a steep decline in personal computer sales, which research firm Gartner pegged at a 7% decline worldwide in the December quarter and IDC put at 6%.

Microsoft said revenue from its flagship operating system fell just 3%, reflecting a 12% gain from PCs that its partners sold to enterprises, although it made no distinction between which version sold better, Windows 7 or its much-criticized Windows 8.1. Windows revenue from consumer purchases fell 20%, dragged down by a sharp decline in China.

"Our commercial segment continues to outpace the overall market, and our devices and consumer segment had a great holiday quarter," Ballmer said in a statement. The company, however, offered no updates on who will replace the departing Ballmer.

The software maker's devices and consumer revenue grew 13% to $11.9 billion in the quarter. Microsoft's commercial revenue segment grew 10% to $12.7 billion in the quarter.