The entertainment division at Microsoft (Nasdaq: MSFT) has turned into the company's fastest-growing business.

Microsoft reported revenue of $16.4 billion for the first three months of this year, up 13% from Q1 2010. The Windows division is still the strongest business at Microsoft, with sales of $4.45 billion, but money shifting actually shows a 4.5% drop in revenue and a 10.0% decline in operating profit.

The Xbox 360, meanwhile, is still performing extremely well and sold 2.7 million units in the first quarter, up from just about 1.5 million in Q1 last year. Microsoft also sold 2.4 million Kinect units, which pushed overall shipments above 10 million since its introduction on Nov. 4, for a total of 10.4 million so far.

The revenue of the Xbox business climbed by 59.9%, and Microsoft expects another 25% of growth for the next quarter. The division's operating profit was up 50% in Q1, from $150 million to $225 million. Nintendo (OTC BB: NTDOY.PK), in the meantime, recently conceded that Wii sales are declining rapidly.

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