Microsoft reported record fiscal first-quarter revenues on Thursday, with strong demand for Office, Windows 7, and the Xbox driving a 51 percent increase in profits.

Microsoft reported net income of $5.41 billion on revenue of $16.20 billion for the quarter ended Sept. 30. That represented a 51 percent increase in profits, and a 25 percent jump in revenue from the same period a year ago. Microsoft said its year-ago results included the deferral of $1.47 billion of revenue due to its Windows 7 upgrade option.

Sales to small- and medium-business customers were up over 30 percent, partially aided by a 15 percent boost in the number of customers selling Microsoft products.

“We see customers of all sizes leveraging cloud services from Microsoft,” chief financial officer Peter Klein said on the call, reiterating the cloud focus that Microsoft had emphasized at its Professional Developers’ Conference.

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The company said that Office 2010 revenue was up 15 percent over previous Office revenue in its first full quarter of sales. Xbox sales grew by 38 percent to 2.8 million units, and Bing also continued its market-share expansion.

More importantly, the company said that it “continues to see a healthy and sustaining business PC refresh cycle,” a contrast to a gloomy outlook for the PC microprocessor market, which could have a negative impact on PC sales.

Microsoft saw PC sales grow at between 9 and 11 percent, with business PC growth in the mid-teens. PC growth in emerging markets, unsurprisingly, was stronger than in mature markets.

“This was an exceptional quarter, combining solid enterprise growth and continued strong consumer demand for Office 2010, Windows 7, and Xbox 360 consoles and games,” said Peter Klein, chief financial officer at Microsoft, in a statement. “Our ability to grow revenue while continuing to control costs allowed us to deliver another quarter of year-over-year margin expansion.”

Microsoft reported revenue of $4.79 billion for the Windows and Windows Live division, versus $4.35 billion for the same period a year ago, with the Windows 7 deferral revenue factored in. Without it, Microsoft reported $2.88 billion for the period. The business reported $3.3 billion in operating income, more than double that of a year ago.

Microsoft said it sold over 240 million Windows 7 licenses to date.

Microsoft’s Server and Tools business reported $1.63 billion in operating income on $3.96 billion in revenue.

Microsoft’s Business Division reported $3.9 billion in operating income versus $5.13 billion in revenue, a 14 percent jump in revenue, with double-digit growth for SharePoint, Lync, Dynamics CRM, and Exchange. And Microsoft’s Online Services Division reported $530 million in revenue, an 8 percent increase. However, Online Services reported an operating loss of $560 million, versus an operating loss of $477 million a year ago.

Microsoft’s Entertainment and Devices Division, the home of the Xbox, reported $1.80 billion in revenue, up 27 percent from a year ago. The division reported $382 million in operating income, and “Halo:Reach generated $350 million in revenue.

Microsoft’s outlook for its Windows business is to be in line with PC market growth excluding the Windows 7 launch spike of about $600 million, the company said; for its business division, Microsoft expects non-annuity revenue in line with PC market growth, and multi-year license revenue to grow in the mid- to high single digits.

Sales of Kinect for the Xbox and Office 2010 helped boost Microsoft revenue by 15 percent last quarter, the company announced Thursday.

Revenue landed at $19.95 billion. That’s up from $19 billion from the same time period last year, though that $19 billion figure included $1.71 billion in deferred revenue from the Windows 7 Upgrade Option program and Windows 7 pre-orders. As a result, revenue was up 15 percent year-over-year without that deferment, Microsoft said.

Profit came in at $6.63 billion, down slightly from last year’s $6.66 billion.

The big winner last year was Microsoft’s Entertainment & Devices division, which grew 55 percent thanks to the Kinect, which also helped boost sales of the Xbox 360 consoles, Xbox Live subscriptions, and Xbox games. At this year’s CES, Microsoft chief executive Steve Ballmer announced that Microsoft sold 8 million Kinect devices in its first 60 days on the market.

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The company’s business division also grew 24 percent last year, buoyed by the release of Office 2010, which made its debut in June.

Office 2010 is the fastest-selling consumer version of Office in history, Microsoft said. License sales are more than 50 percent ahead of what Office 2007 achieved in the same time period.

“Office had a huge quarter, exceeding everyone’s expectations, and our roadmap for cloud productivity with Office 365 makes products like SharePoint, Exchange, Lync and Dynamics CRM even more attractive to our customers,” Kevin Turner, chief operating officer at Microsoft, said in a statement.

Microsoft also announced that it has now sold more than 300 million Windows 7 licenses. “To put that in perspective, 300 million is roughly the combined number of households in North American and in Europe! Or, to put it another way, if you lined up 300 million Windows 7 product boxes, they would stretch nearly 1.5 times around the Earth,” Microsoft said in a blog post.

At this point, more than 20 percent of Internet-connected PCs are running Windows 7, according to Net Applications.

Earlier this week, Microsoft said it has now sold 2 million Windows Phone 7 devices, though those sales are to OEMs; Microsoft did not break out consumer sales. Instead it focused on user satisfaction and a growing developer community, a theme it reiterated during its earnings call.

Microsoft is “encouraged” by Windows Phone 7 sales, but “we realize we still have a lot of work ahead of us and we remain focused and committed to the long-term success of Windows Phone 7,” the company said. Microsoft said it will soon add new features to the OS, as well as support for CDMA phones, which includes Verizon.