Cloud computing is going to kill Windows? Not a chance.

Record sales of Microsoft's (NASDAQ:MSFT) let's-all-forget-Vista operating system, Windows 7, led to a 14% improvement in second-quarter revenue and a breathtaking 57% gain in per-share earnings compared to last year.

Windows 7 led the surge. Mr. Softy sold more than 60 million licenses of the OS to consumers and its key PC manufacturing customers, including Dell (NASDAQ:DELL) and Hewlett-Packard (NYSE:HPQ).

So it was a great quarter all the way around, right? Sort of. For as big a winner as Windows 7 was and still appears to be, Microsoft reported less cash from operations in Q2 than it did in the same quarter a year ago. Free cash flow fell 7%. Here's why:

Business Unit

Fiscal Q2 09*

Fiscal Q2 08*

% Change

Windows & Windows Live

$6,904

$4,064

69.9%

Server and Tools

$3,844

$3,755

2.4%

Online Services

$581

$609

(4.6%)

Microsoft Business

$4,745

$4,881

(2.8%)

Entertainment and Devices

$2,902

$3,256

(10.9%)

Source: Microsoft press release. *Numbers in millions.

Windows 7 did all the work. A good chunk of the resulting revenue -- $1.7 billion, specifically -- was collected in cash last quarter and booked as deferred revenue in Q2. Of course cash flow declined; Mr. Softy opened its Windows 7 coffers months ago.

And yet these numbers are worrisome in one way. They reveal weakness in sales of the Office franchise. Revenue for the "Microsoft Business" unit that sells Word, Excel, and the rest of Mr. Softy's popular business software fell year over year.

A June refresh of the suite should create a needed tailwind for the group, and for Microsoft generally. At the very least, it should partially blunt Google's (NASDAQ:GOOG) assault on the franchise with its Web-based Apps suite.

A window to see through the clouds
I'm still extremely bullish on the future for cloud computing services. Google Apps, Netflix's (NASDAQ:NFLX) Watch Instantly, Twitter, salesforce.com (NYSE:CRM) -- all of these technologies are carving out what appear to be sustainable niches.

The good news for Microsoft is that having them doesn't preclude the need for Windows. (Or Mac OS X, or Linux.) So long as that's true, Mr. Softy will continue reaping profits.

Now it's your turn to weigh in. Were you impressed by Microsoft's earnings report? If not, why? Make your voice heard using the comments box below.