Xbox and Kinect shine in Microsoft earnings report

The Xbox and Kinect motion controller are again Microsoft’s brightest stars as the company posted strong earnings and 60 percent growth in its entertainment division, even though sales of its flagship Windows operating system fell slightly amid weak personal computer demand.

Microsoft posted solid gains in the third fiscal quarter this year when compared to last year. Revenue rose 13 percent to $16.4 billion, up from $14.5 billion in the same quarter a year earlier. Most of that came from Microsoft’s continued Kinectification as its video game console motion controller proved extremely popular. Revenues from Microsoft’s entertainment and devices division was up 60 percent to $1.9 billion in the third fiscal quarter this year, from $1.2 billion in the third quarter last year.

Despite Microsoft’s strong performance, Apple posted a quarterly profit of nearly $6 billion, compared to Microsoft’s $5.2 billion profit in the third fiscal quarter this year. While Apple has grown at a mammoth pace to become the second largest company in U.S. markets in terms of market cap, the company had not yet beaten Microsoft in quarterly income.

The company’s operating income was up 31 percent to $5.2 billion from $4 billion in the third quarter last year. While the company’s research and development costs didn’t grow, the company’s operating expenses as a whole rose 15 percent to $10.7 billion — up from $9.3 billion in the third quarter last year.

Office also proved essential to Microsoft’s decent showing today. Revenue from the company’s Business Division rose 21 percent to $5.3 billion, up from $4.3 billion in the third quarter last year. Microsoft said it was a result of strong sales of its Office 2010 software.

Microsoft also said its expenses will rise 3 to 5 percent next year, which could be the first hint of a financial impact from Steve Ballmer’s sweeping pay raises for all Microsoft employees. The company expects its operating expenses to be somewhere around $28 billion for the 2012 fiscal year.

Sales of its Windows operating system fell slightly — down 4.4 percent from $4.7 billion in the third fiscal quarter last year to $4.4 billion in the third quarter this year. That’s because computer sales have recently stalled as tablets have become more popular and consumer interest in personal computers waned slightly.

The company now has around $50 billion in cash and short-term investments. There were some whispers today that Microsoft might actually buy Research in Motion after the BlackBerry maker’s shares were halted in after-hours trading once Microsoft’s earnings report came out — though that’s extremely unlikely because trading resumed and the company just downgraded its outlook.