First, the good news: Microsoft's gaming business is booming. For the three months ending June 30, the software giant reported that its PC and Xbox 360 gaming business saw a 30 percent increase in sales, with game-based revenue reaching $228 million. The tally was dragged down somewhat by the production cost of the new 250GB and 4GB slimline Xbox 360s, which includes built-in N-wireless connectivity. Notable first-party releases during the quarter include the long-awaited Alan Wake, an Xbox 360 exclusive from Max Payne creator Remedy Entertainment.

　　Microsoft remains cash-flush, thanks in part to PC and Xbox 360 gaming.

　　Now, the not-so-good news: The Entertainment and Devices division of Microsoft's business saw revenues slip 22 percent and take a $172 million loss. That wasn't the fault of game sales, though. The division also includes the unit behind Microsoft's stillborn Kin mobile phone. After just six weeks--and reportedly dismal sales--the company yanked the cord on the social-network-optimized device, which had been targeted at the youthful demographic known as "'tweens." It is now focusing its mobile efforts on Windows 7-based phones and has transferred the staffers behind the doomed project to its core business.

　　Overall, Microsoft profits were up--way up, in fact. The company reported a record $16.04 billion in revenue for the April-June quarter--an increase of 22 percent over the year prior--with profits of $4.52 billion, a 48 percent jump. Diluted earnings were per share at $0.51, a 50 percent increase over the same period in 2009.

　　Microsoft also has ambitious plans for its gaming business for the year ahead. As it announced during its Electronic Entertainment Expo press conference, the company will launch its Kinect motion-sensing system on November 4. It will be offering the controller-free, camera-based system solo for $150, or bundled with the (normally $200) 4GB Xbox 360 console and the minigame compilation Kinect Adventures for $300. In September, it also will be reportedly offering a limited edition, silver-finish $400 250GB Xbox 360 bundle packed in with Halo: Reach and two controllers.