Did Windows Help or Hinder Microsoft’s Earnings?

As the demand for personal computers continues to drop worldwide, Microsoft (NASDAQ:MSFT) has made a foray into the hardware business with its Surface tablet and launched a major redesign of its Windows operating system. Since their launch in late October, analysts have struggled to determine whether the strategy has been a success, but with the company’s second-quarter results for the 2013 fiscal year, the picture has become more clear.

For the three-month period, Microsoft reported a profit of $6.38 billion, or 76 cents a share, on revenue of $21.46 billion. These results fell below the $6.62 billion, or 78 cents a share, the company earned in the same quarter last year, but they beat bottom-line estimates by a penny. Analysts polled by FactSet had expected earnings of 75 cents a share on $21.56 billion in revenue for the quarter ended December 31.

Microsoft’s Chief Executive Officer Steve Ballmer claimed that both Windows and the whole PC industry had been “reimagined” thanks to the new operating system. However, the reviews of the company’s touch-screen operating system have been lukewarm, and that was evident in the second-quarter results, which were the first to reflect sales of the new products. But given how poor Surface sales have been and how dismal the PC market is, the quarter could have been worse

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While revenue was down at the company’s Business division and its Entertainment and Devices unit, revenue for the Windows division increased 24 percent to $5.88 billion, a positive sign for the company’s attempts to revitalize its business.

Shares ticked down more than 1 percent in after-hours trading following the earnings announcement, but Ballmer maintained his positive outlook for the future profitability of Windows. “With new Windows devices, including Surface Pro, and the new Office on the horizon, we’ll continue to drive excitement for the Windows ecosystem and deliver our software through devices and services people love and businesses need,” he said in the earnings statement.

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