Despite the challenges of increased competition from Linux and the pressures of anti-trust acivity, Microsoft continues to rake it in. Citing strength across all businesses, the company has reported record revenue for its second fiscal quarter that beat its own guidance as well as Wall Street's expectations.

In the final three months of 2004, Microsoft recorded revenue of US$10.82 billion, up 7 percent from $10.15 billion in the year-ago period. Net income for the quarter amounted to $3.46 billion, up from $1.55 billion in the year-earlier period, Microsoft said.

Microsoft surpassed its own forecast, given in October, for revenue between $10.3 billion and $10.5 billion and earnings per share of $0.28, although analysts had expected Microsoft revenue to be $10.55 billion, according to a consensus estimate from Thomson First Call.

While both its consumer and business segments performed well, Microsoft highlighted its Home and Entertainment segment in its earnings release. The group, benefiting from strong sales of the Xbox game console and Halo 2 game, posted its first profitable quarter in the final quarter of 2004, Microsoft said.

Still, while Home and Entertainment was profitable in the second fiscal quarter, it will lose money for the remainder of the year, said Microsoft chief financial officer John Connors said on a conference call with financial analysts. The goal for the group is to reach sustained profitability sometime in Microsoft's fiscal year 2007, he said.

For its third fiscal 2005 quarter, which ends 31 March, Microsoft forecasts revenue between $9.7 billion and $9.8 billion. "IT and corporate spending was healthy during this (second) quarter and we expect that to continue for the rest of the fiscal year," Connors said.

Microsoft's growth in the quarter was driven primarily by growth in sales of the Windows on server and client systems as well as other server products, the company said. Revenue at the Server and Tools group, responsible for Microsoft's server products and developer tools, jumped 18 percent to $2.52 billion in the quarter from $2.15 billion in the year-earlier period. At the Windows Client group, revenue was up 5 percent to $3.22 billion from $3.06 billion.

"The world is buying a heck of a lot of servers," Connors said. "We expect the Windows platform to grow faster than the overall server segment, just as it has for the past few years."

Revenue at the Information Worker group, responsible for Office, dropped 3 percent. In 2003's second fiscal quarter, Microsoft introduced Office 2003, which resulted in a very successful quarter, the company said in the filing.

As a result of Microsoft's $32.64 billion dividend payout in December, the company's cash hoard has shrunk to $34.5 billion.