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UPDATE 3-Microsoft profit beats forecasts, no word on new CEO

Bill Rigby
Thursday, 23 Jan 2014 | 6:01 PM ET

SEATTLE, Jan 23 (Reuters) - Microsoft Corp posted a bigger-than-expected quarterly profit on Thursday, boosted by strong sales of its Office software to businesses, a solid holiday season for its new Xbox game console and Surface tablets, and a slightly lower tax bill.

The world's largest software company did not say anything about its unexpectedly long five-month search for a new chief executive to replace Steve Ballmer, who said in August he would retire within a year.

The company co-founded by Bill Gates 39 years ago was central to the personal computer revolution, but lost its way in the last decade under Ballmer as Apple Inc and Google Inc stormed ahead in mobile computing.

The quarter may well be the last full one for Ballmer, and it at least showed some positive momentum for the Surface tablet, Microsoft's long-delayed attempt to knock Apple's iPad off its perch.

"It's a good print to ride off into the sunset with, for the current CEO," said Colin Gillis, an analyst at BGC Financial. "There's still the over-arching question for this company: who's going to be the new CEO, and what direction they take."

Microsoft's new Xbox One console, launched in November, helped the top line, contributing more than half to the 7.4 million unit sales in the quarter, up from 5.9 million a year ago. That said, Sony's cheaper PlayStation 4 appears to be winning the latest video game showdown.

Sales of the second generation of Surface tablets jumped to $893 million in the key holiday shopping quarter, more than the whole of the previous fiscal year.

However, at prices ranging from $450 to $1,800, that figure suggests Microsoft sold no more than 2 million Surface units. By comparison, Apple is expected to announce sales of more than 20 million iPads for the holiday quarter next week.

"Xbox is definitely a feather in Microsoft's cap, they defied the skeptics," said Daniel Ives, an analyst at FBR Capital Markets. "But Surface continues to be the Mount Everest of uphill battles."

Overall, Microsoft reported a fiscal second-quarter profit of $6.56 billion, or 78 cents per share, compared with $6.38 billion, or 76 cents per share, in the year-ago quarter.

That easily beat Wall Street's average estimate of 68 cents, according to Thomson Reuters I/B/E/S, lifting Microsoft shares 3.4 percent in after hours trading.

Overall revenue rose 14 percent to $24.5 billion, also beating Wall Street's forecast of $23.7 billion.

Over the last few months analysts slightly raised revenue estimates, but reduced them for net income.

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