Not bad, but for the (US) economy. Its ‘investor relationship’ time & nothings more exciting than analyzing Microsoft (things get interesting when this is done by an engineer <in the making> and not an economist) 

Here is what Microsoft’s second quarter earnings (ending Dec 31, 2007) look like in brief:
16.3 Billion Dollars in revenue as compared to 12.5 billion (Q2 2006), that’s a lot of fallen trees. 

But what is eye catching in their form 10Q is the warranty settlement part (remember the rrod?)
Microsoft spent 86 Million $ on warranty settlement between July 1, 2007 - September 30,2007 as compared to 189 Million @ Between September 30,2007 to December 31,2007.
Although over 1 Billion dollars has been allocated (of which 861 Million remain) specifically to address the RROD issues, a 100% increase in claims does not look good.

The Online Service business does not seem very rosy either, although Microsoft managed to rake in 863 Million dollars in revenue (625M Q2-06), the operating loss of this division seems to be widening at a faster rate. The division recorded an operating loss of 248 Million dollars (116M Q2-06).

On the positive side, its Client and Business Divisions are seeing good growth. Entertainment Division is doing well (positive income for 3 quarters now) 334 Million for Q2-07.

What does not look good about the Entertainment Division is their revenue growth - or to be very frank - the Wii eating the 360's growth.

Revenue: 3.06 Billion vs 2.9 Billion (Q02-07 vs Q02-06), whereas 4.9 Billion vs 3.9 Billion (H1-07 vs H1-06).
As you may have notice from the above numbers, the quarterly growth during the holiday season (as seen in the respective second quarters) remains constant. This could in a way be attributed to the rising popularity of the Wii gaming console. [or conveniently blamed on the subprime crisis and lower consumer spending]

What should Microsoft do?
* Needs to get its online offering ramped up
   - Fix Live, Live Search, Live Mail.
* Become good @ advertising
   - Seek newer markets - location based advertising (mobile and other devices), rich streaming advertisements (free content), and text advertisements on web sites
* Fix Vista (although i haven’t had any issue's)
   - Better treatment of Ultimate users (remember Ultimate Extras)
* Diversify into Devices - PMP's, custom UMPC's
* Revamp Windows Mobile


Official Filings can be found at the Microsoft Web Site or at my SkyDrive