Microsoft reports 11% profit rise

Microsoft has reported a better than expected 11 per cent rise in its first-quarter profits as the company said it benefited from stronger sales of server software and some cost savings.

Microsoft also had higher than expected revenue from the unit that includes the Xbox video game console.

For the three months to the end of September, Microsoft said it earned $3.48 billion (€2.73 billion), or 35 US cents a share, compared with $3.14 billion, or 29 cents, in the same period last year. The year-earlier results included a one-time legal charge of two cents a share.

The Redmond, Washington-based company said revenue for its fiscal first quarter was $10.81 billion, an 11 per cent increase from $9.74 billion a year earlier.

Analysts had expected earnings of 31 cents a share on revenue of $10.75 billion.

Chief financial officer Chris Liddell said net income was boosted by higher-than-anticipated investment income. He said Microsoft also was able to reduce spending in the just-ended quarter, but he warned that some of the savings would be spent in the current quarter on marketing and other efforts.

For its current fiscal second quarter, which ends December 31st, Microsoft said it expected per-share earnings of 22 cents to 24 cents.

The company said the results would be about 11 cents less than it might have been because it expected to defer about $1.5 billion in revenue to its fiscal third quarter. Microsoft expects to defer the revenue because of a plan to offer coupons to buyers of computers over the next few months for free or discounted upgrades to the new version of its Windows operating system and Office software.

After many delays, Windows Vista is due to be released to home users in January. Microsoft and computer makers are offering the coupons in the hopes that people won't wait and will buy new Windows-powered computers as Christmas presents.

Microsoft said that after deferring the $1.5 billion, revenue for its second quarter would be $11.8 billion to $12.4 billion.

Microsoft now expects earnings of $1.43 to $1.46 per share for its full fiscal year ending in June, a small revision to a previous forecast of $1.43 to $1.47. But revenue for the 12-month period is expected to be $50 billion to $50.9 billion, a slight increase over a previous forecast of $49.7 billion to $50.7 billion.

Mr Liddell said the fiscal-year earnings forecast was lowered in part because the company's plan to buy back about $20 billion worth of shares wasn't as successful as anticipated, and Microsoft was able to buy back only about $4 billion in stock.

Analyst Alan Davis at DA Davidson said Microsoft, which is often considered conservative in its guidance, might exceed those forecasts. "It's not a bad quarter, not a bad outlook," he said.