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Microsoft Posts Higher Sales, Lower Operating Profit

Redmond, Wash. – Microsoft reported higher revenue and but
lower operating profit in its fiscal second quarter, ended Dec. 31.

Revenue was $19.95 billion and rose 5 percent under GAAP
rules while operating income for the quarter was $8.17 billion, down 4 percent compared
with the prior year’s second quarter.

Prior-year results reflect the recognition of $1.71 billion of
deferred revenue relating to the Windows 7 Upgrade Option program and sales of
Windows 7 before general availability in October 2009.

“We are enthusiastic about the consumer response to our
holiday lineup of products, including the launch of Kinect. The 8 million units
of Kinect sensors sold in just 60 days far exceeded our expectations,” said
Peter Klein, CFO at Microsoft. “The pace of business spending, combined with
strong consumer demand, led to another quarter of operating margin expansion
and solid earnings per share growth.”

Among the factors driving Microsoft’s record revenues and
earnings was the 55 percent growth in revenue for the entertainment and devices
division, as the success of the Kinect sensor boosted sales of Xbox 360
consoles, Xbox Live subscriptions and Xbox games, the company said.

Among the other product and business highlights Microsoft
reported in the quarter:

Phone 7 launched during the quarter in 30 countries and on 60 operators and
nine different devices. Microsoft announced developers are adding Windows Phone
7 applications to the marketplace at a rate of over 100 per day.

completed the integration of Yahoo! search in the U.S. and Canada and continues
to gain share.

Explorer 9 is Microsoft’s fastest downloaded beta browser of all time, with more
than 20 million downloads to date.