Net income for the quarter was $3.57 billion, or 40 cents per share. That's an 18 percent decline from the year-ago period. But Microsoft said the results reflect a deferral of $1.47 billion in revenue relating to the Windows 7 Upgrade Option program and sales of Windows 7 to OEMs and retailers before general availability. If added back in, Microsoft would have a four percent year-over-year decline in a tough economy.

"We are very pleased with our performance this quarter and particularly by the strong consumer demand for Windows," said Chris Liddell, CFO at Microsoft. "We also maintained our cost discipline, which allowed us to drive strong earnings performance despite continued tough overall economic conditions."

A Trio of Wins

Microsoft cited three positive factors for the quarter: Windows 7 and Windows Server 2008 R2 launched globally on Oct. 22. Microsoft released Microsoft Exchange Server 2010 to manufacturing and in July announced a strategic partnership with Yahoo to provide search results for its global properties.

"The worldwide launches of Windows 7, Exchange Server 2010 and Windows Server 2008 R2 are exciting milestones for Microsoft, our partners and customers," said Kevin Turner, COO at Microsoft. "We are pleased by the early positive response we are receiving for these products."

Charles King, principal analyst at Pund-IT, was in New York for Thursday's launch of Windows 7. From his perspective, Microsoft couldn't have handled the launch any better. And other than a problem with an Adobe update, King said he hasn't seen or heard about any glitches with the new operating system.

"The OS itself was very impressive, and there were also some terrific new products by virtually all of the major PC and notebook vendors on display at the event in New York," King said. "They were visually stunning in some cases and showed off the new features of Windows 7 very well. I would expect a strong market uptake of Windows 7 over the next 12 to 18 months."

Will IT Spending Impact Redmond?

King's expectations are in line with a recent Gartner report indicating IT spending will return to growth in 2010, totaling $3.3 trillion. That's a three percent increase from 2009.

"While the IT industry will return to growth in 2010, the market will not recover to 2008 revenue levels before 2012," said Peter Sondergaard, senior vice president at Gartner and global head of research. "2010 is about balancing the focus on cost, risk and growth. For more than 50 percent of CIOs, the IT budget will be 0 percent or less in growth terms. It will only slowly improve in 2011."

The hardware market has struggled more than other computer segments with worldwide spending forecast to total $317 billion this year, a 16.5 percent decline. In 2010, spending on hardware will be flat, Gartner predicted.

"For Microsoft as it relates to Windows 7, the market to keep a close eye on in the next three to five months would be the consumer market," King said. "We'll be watching closely next year to see what kind of uptake we see in the business market."