Investors reward Microsoft for strong quarter

Microsoft CEO Steve Ballmer Getty Images

Microsoft (MSFT) is a company people love to hate. Diehard fans of Apple (AAPL) and Google (GOOG) have mocked the software maker's pratfalls in the mobile technology market, particularly the slow initial sales of its Surface line of tablets.

Yet Microsoft CEO Steve Ballmer, who is slated to retire this summer, may have the last laugh. The company's latest revenue and profits, which it reported Thursday, topped analyst forecasts, even as the sales of PCs and its Microsoft Windows platform continued to tumble.

Largely powering the growth was the strong holiday season demand for Microsoft's new Xbox One video gaming console, along with Surface revenue that more than doubled from the previous quarter. Microsoft's stock rose by more than 3 percent shortly after the markets opened on Friday.

 The Xbox One was a safe bet to succeed. It had been years since the release of Microsoft's last console, the Xbox 360, and there was pent-up demand from serious gamers. But the pick-up in Surface sales, while tiny compared to the billions in revenue Apple sees from iPads in a single quarter, is significant. It also also seems to validate Ballmer's decision last year to reorganize Microsoft to better address current market conditions.

Still, the company has a long way to go if it wants to match its competitors when it comes to hardware sales. Microsoft's gross margins on devices was 8.7 percent, which is thin by industry standards. In the past, Microsoft has sold gaming consoles at near or even below cost in order to capture market share. The company also reportedly loses money on Surface unit sales. That raises the question of what would happen to sales of the tablet if Microsoft ever boosted prices.

  • Erik Sherman On Twitter»

    Erik Sherman is a widely published writer and editor who also does select ghosting and corporate work. The views expressed in this column belong to Sherman and do not represent the views of CBS Interactive. Follow him on Twitter at @ErikSherman or on Facebook.

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