XBox sales help boost revs to $17.4 billion

As it launches a popular new smartphone with Nokia, dominates the videogame console wars with its Xbox 360 and readies to bow the next version of Windows, Microsoft reported a record third quarter Thursday, with revenue up 6% to $17.4 billion, boosting operating income 12% to nearly $6.4 billion.

Much of that coin came from the company’s business division, which hauled in $5.8 billion from sales of software like Microsoft Office, followed by server and tools ($4.6 billion); Windows and Windows Live ($4.6 billion); and online services ($707 million), all recording gains of between 4% and 14%.

While the Xbox 360 has been the top-selling videogame console in the U.S. for the past 15 months in a row, however, Microsoft’s entertainment and devices division saw a 16% drop in sales, earning $1.6 billion. Company blamed the performance on a “soft gaming console market.” Overall, the biz has posted double-digit declines each month this year.

“We’re driving toward exciting launches across the entire company while delivering strong financial results,” said Microsoft CEO Steve Ballmer in a statement. “With the upcoming release of new Windows 8 PCs and tablets, the next version of Office and a wide array of products and services for the enterprise and consumers, we will be delivering exceptional value to all our customers in the year ahead.”

The growth of the Windows-powered devices is expected to benefit Hollywood in that content makers will be able to generate more coin from the distribution of their projects through game consoles and smartphones that can play video. Microsoft has stressed the need to make entertainment and social media tools easier to access through new versions of it software.

While Microsoft will put heavy marketing support around the launch of Windows 8 in the fall, the company is also eager to promote its Windows-for-cellphones software, embraced by handset maker Nokia, which has rolled it out with its new Lumia line, available exclusively through AT&T stores in the U.S.

The software and Nokia handsets it’s available on were well received at the Consumer Electronics Show in Las Vegas in January, but Microsoft still has a lot of ground to make up to compete with Google and Apple. Windows software makes up just 2% of the global smartphone market, according to research firm Gartner.

Verizon said it is working with Microsoft to incorporate Windows Phone 8.0 on more of the carrier’s own devices by the holidays at the end of the year.

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