Microsoft beat the Street Thursday when it posted record revenue of $16.2 billion for the September quarter, up 25% year-over-year, and earned $5.41 billion, up 59%, or 62 cents a share, against expectations of 55 cents on $15.8 billion.

However, Wall Street lowered its expectation on the back of weak PC sales this summer and Microsoft's percentage gains in the quarter are wildly exaggerated because this time last year it deferred $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 in October 2009. Adjusted, revenue was up 13% and income up 16%.

The consumer is supposed to have wimped out in the September quarter and back-to-school sales were a bummer - but Microsoft dodged the issue during the conference call - and said it's "seeing improved business demand and adoption. Our enterprise agreement rates were strong, reflecting business commitment to Windows 7, Office 2010 and our server and database products."

It said Azure subscriptions were up 40% sequentially.

Microsoft claimed growth across all its lines of business.

It said Office 2010 was up 15% its first full quarter in the market and doing 27% better than Office 2007 at the same point in time. The consumer side of the Office business was up 26%, commercial up 11%. Multi-year licenses were up 5%.

Exchange, Lync and Dynamics were also up. Business Division revenues, where they all live, were $5.1 billion, up 10%. The unit's profits were up 20%.

The company said it "continues to see a healthy and sustaining business PC refresh cycle."

Windows and Windows Live revenues were up 66% to $4.8 billion. OEM revenues, usually 75% of the take, were up 11%. It found that netbooks were giving way to low-end notebooks and said tablets weren't impacting low-end machines. It claimed demand for new Windows form factors.

Server and Tools revenues were worth $3.96 billion, up 12%; Online Services $527 million, up 8.2%. Entertainment and Devices was good for $1.8 billion, up 27%.

Bookings are up 24%; the last three quarters, Microsoft said, have been the best in three years. It expects business PC growth to outpace consumer and said Windows should grow in line with the market.

The company reaffirmed operating expense guidance of $26.9 billion-$27.3 billion for the full year ending June 30, 2011. Analysts are expecting Microsoft to see 68 cents a share this quarter on sales of $19 billion.