It appears that Microsoft’s (MSFT) new CEO is off to a good start. The company posted strong fiscal third-quarter sales from office tools, database and other programs for computer centers that historically account for the majority of its profit. Overall, sales to commercial customers rose 7%, while its consumer revenue, such as Windows operating software, Xbox games and consoles, rose 12%, bucking the recent downward trend PC sales. Operating profit rose 4.3%, and the company reported earnings that topped Wall Street estimates.

“Today’s results demonstrate the breadth and strength of our overall business,” said Chief Executive Satya Nadella, who succeeded Steve Ballmer less than three months ago. In a change from Mr. Ballmer, he took questions from analysts following the earnings announcement.

Improved results in consumer businesses were another surprise. The company is best known for selling Windows and its Office application software for PCs, a market that has been hurt as spending has shifted to tablets and smartphones.

However, there are signs that the drop in PC demand is flattening, largely propelled by new corporate PC purchases. The research firm IDC this month said global PC shipments declined 4.4% last quarter, while rival Gartner estimated a 1.7% drop. Microsoft, meanwhile, said its own revenue from selling Windows operating software to PC makers rose 4%.

In Microsoft’s commercial businesses, sales of a Web-friendly version of Office was the biggest contributor to a doubling of revenue from “cloud” products. The operation that includes cloud software is less than 10% of the Microsoft’s total revenue.

Microsoft’s net income for the quarter ended March 31 fell 6.5% to $5.66 billion, or $0.68 a share, from $6.06 billion, or $0.72 a share, a year ago. Analysts polled by I/B/E/S expected $0.629 a share.

Revenue fell less than 1% to $20.4 billion, reflecting a year-earlier revenue bump from estimated upgrades of Windows and Office software.

 

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Wayne Thorp
ABOUT THE AUTHOR:

Wayne A. Thorp, CFA, is editor of Computerized Investing and a vice president and the senior financial analyst at The American Association of Individual Investors (AAII). He is also the program manager for AAII's Stock Investor Pro fundamental stock screening and research database program and is on the advisory boards of AAII's Stock Superstars Report and Dividend Investing newsletters. He holds the Chartered Financial Analyst (CFA) designation and is a 1997 honors graduate of DePaul University in Chicago. Wayne's interests include stock screening, technical analysis and charting, social media and tech gadgets. However, in the summer he'd prefer to be hip-deep in northern Michigan's Manistee River fly-fishing for rainbow trout.

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