Microsoft posts record revenue, thumbs nose at Apple
So this won’t be the quarter that Apple sells more stuff than Microsoft. Microsoft (Nasdaq: MSFT) eked out slightly more revenue than Apple, and billions more in profit. Microsoft  MCTS Training reported another record quarter for its fiscal fourth-quarter that ended June 30. The company booked 16.04 billion in revenue, a 22% increase from the year ago period. Operating income, net income and diluted earnings per share for the quarter were $5.93 billion, $4.52 billion and $0.51 per share, which represented increases of 49%, 48% and 50%, respectively, when compared with the prior year period.

In comparison while Apple also posted record revenue, it booked $15.7 billion in revenue with a net quarterly profit of $3.25 billion, or $3.51 per diluted share.

Microsoft gives most of the credit to Windows 7 which it says has sold more than 175 million licenses to date.

On the downside, looks like the failed Kin phone could have cost Microsoft about a quarter of a billion dollars. Microsoft notes: “Cost of revenue increased $584 million or 23%, primarily reflecting increased online costs, increased royalty costs and charges resulting from the discontinuation of the KIN phone.” And then it gets more specific when reporting the losses the Entertainment & Devices Division racked up, the unit responsible for the Kin. The division lost $172 million in the final quarter. Microsoft says, “Cost of revenue increased $251 million or 38% primarily from charges resulting from the discontinuation of the KIN phone and increased royalty costs resulting from increased Xbox LIVE digital marketplace third-party content sales.”

While the unit did manage to increase its profits over the course of the year, it didn’t increase revenue. Microsoft was able to offset a lot of the failed Kin cost and show that year-end profit in that unit because it reduced costs associated with building Xbox 360 consoles and also because it had “reductions in other costs due to resource management efforts.”

Could this statement reflect the fact that several extremely high paid executives in the Entertainment & Devices Division were shown the door? President Robbie Bach announced his exodus in May. Shockingly Bach was Microsoft’s highest paid exec. He earned over $6 million in 2009, and was paid the largest cash bonus, of more than $1.1 million.

Likewise, J Allard also announced in May that he’s leaving, though technically he’s staying on until the fall. Allard was Chief Experience Officer and Chief Technology Officer, Entertainment and Devices Division, and best known for championing the Xbox as a platform for social networking and online functionality. His exodus was a surprise to many since Xbox Live — the console’s online capabilities — has finally made the game console a hit. And users are fairly excited about the up-and-coming Kinnect gesture based interface.

Still, it is frustrating to see Microsoft pour this much money and effort into an Entertainment & Devices Division only to wind up alienating the young, hip customers it is trying to woo. Who pays for that? You, the enterprise customer, does. The $5.93 billion in operating profit comes from its software users, mostly the business users.

As evidence, Microsoft Office 2010 was praised for its contribution to the great quarter, as users were stopped from buying Word 2007 due to a court injunction forbidding the sale of it. Microsoft lost a patent infringement lawsuit which caused the injunction. Consumers bought an additional $357 million worth of Office 2010 products in the third quarter than they did the previous quarter (presumably with all those new Windows 7 PCs). All told, Microsoft raked in $5.25 billion in the division that sells Office. Of that $3.28 was operating income — about half the total operating profit that Microsoft reported.

Microsoft MCITP Certification has not yet released its audited financial report to the SEC, so these figures are based on the press release. I’ll be looking at the formal documents after they post to see what else can be gleaned about Microsoft’s past, present and future.