Microsoft profit falls, shares retreat

Microsoft Corp. said Thursday its fiscal third-quarter profit fell 11 per cent from a year earlier, but it still topped analysts' expectations.

Microsoft Corp. said Thursday its fiscal third-quarter profit fell 11 per cent from a year earlier, when the software maker reported more than $1 billion US in deferred revenue tied to delays in the launch of the Windows Vista operating system.  

Microsoft said its net profit for the three months ended March 31 fell to $4.39 billion US, or 47 cents a share, from $4.93 billion US, or 50 cents a share, in the same period last year.

The results still beat Wall Street's expectations. Analysts surveyed by Thomson Financial forecast a profit of 44 cents per share.

But investors, chewing over the company's guidance for 2009 and a drop in sales in the division that produces the flagship Office productivity programs, sent shares down Friday by 5.8 per cent, or $1.82, to $29.83 on Nasdaq.

Revenue edged up to $14.45 billion US from $14.4 billion in the year-ago quarter. Analysts were looking for $14.4 billion US in sales.

Stronger-than-expected PC shipments in the quarter could not offset the $1.67 billion US in deferred Vista revenue booked in the 2007 quarter. Sales in the division responsible for Windows fell 24 per cent to $4.02 billion US.

Sales in the segment that sells the Office productivity suite and other business applications edged down 2 per cent to $4.75 billion US from a year ago. Chief Financial Officer Chris Liddell said in an interview that weak sales of Office to consumers and in Japan overall hurt the segment.

Server and tools sales rose 18 per cent to $3.3 billion US, helped by the launch of new versions of Windows Server and other major software franchises.

Revenue from the division responsible for the Xbox 360 video game system ballooned 68 per cent to $1.58 billion US, which Microsoft attributed to robust demand for game consoles.

Microsoft's online services business, which makes money primarily by selling advertising online, saw sales rise 40 per cent to $843 million US, but the division's operating loss widened in the quarter.

Microsoft trails far behind market leader Google Inc. in online ad sales, and has made an unsolicited offer to buy Yahoo as a way to close the gap. Yahoo has said the offer is too low, but Microsoft offered no signs that it will raise the price.

Microsoft upped its fiscal fourth-quarter guidance to a profit of 45 cents to 48 cents per share on $15.5 billion US to $15.8 billion in sales.

Microsoft also offered its first guidance for next fiscal year, which ends in June 2009. The company predicts a profit of $2.13 to $2.19 per share, on sales from $66.9 billion US to $68.0 billion. Wall Street is currently looking for a profit of $2.10 per share on $66.52 billion US in sales.