Microsoft results hit by weak Windows sales

Microsoft reported weak quarterly Windows sales and gave a current-quarter earnings forecast at the low end of Wall Street expectations, sending its shares down nearly five percent on Thursday.

Microsoft's announcements overshadowed a strong fiscal 2009 forecast which came in ahead of Wall Street projections, even if the world's largest software maker is slightly wary about the economic outlook.

"We're being cautious just like everybody else," chief financial officer Chris Liddell told Reuters, referring to the economy. He said Windows revenue was lower than the company's expectations, due in part to inventory build-up of computers, which was a "quarter-specific" issue.

The results were set against the backdrop of Microsoft's battle to buy internet company Yahoo, but Liddell declined to comment before a conference call with analysts.

Microsoft posted a net profit of $4.39bn (£2.23bn), or 47 cents per diluted share, for its third quarter ended 31 March, compared with $4.93bn, or 50 cents per diluted share, in the year-ago period. Revenue rose 0.4 percent to $14.45bn.

Analysts, on average, were expecting 45 cents per share on revenue of $14.49bn, according to Reuters Estimates.

"Revenues came in a little bit light. The main culprit there was the [Windows] client business. The division that did really well was the entertainment business," said Tom Telford, portfolio manager at American Century Investments, which owns Microsoft shares.

The third-quarter profit a year ago got a one-time bump from revenue deferred by delays in releasing upgrades to the company's Windows and Office software.

The company forecast the next fiscal year's earnings to rise by 13 percent to 18 percent, predicting strength from its software businesses. It projected earnings per share in fiscal 2009, starting in July, to be in a range of $2.13 to $2.19 per share, and called for revenue of $66.9bn to $68bn.

Wall Street analysts, on average, had been forecasting Microsoft to earn $2.10 per share in fiscal 2009, with estimates ranging from $2.00 to $2.20 per share, on revenue of $66.5bn, according to Reuters Estimates.

"It's nice that they're raising guidance for the rest of the year," said Kim Caughey, senior analyst at Fort Pitt Capital Group. "Microsoft is an extremely conservative company with respect to guidance. That's always positive that they're raising guidance."

Microsoft's results come two days before the deadline, imposed by chief executive Steve Ballmer, is set to expire for Yahoo's board to accept Microsoft's unsolicited takeover offer or face a proxy fight.

In the last few days, Ballmer reiterated that Microsoft has no plans to raise its cash-and-stock offer for Yahoo, now worth $44.1bn, saying the software company would even walk away from a deal if the two sides could not agree on a price.

Yahoo's board has said Microsoft's offer undervalues the company, while its management insists it is not against selling to Microsoft, just not at the offered price.

Microsoft's March-quarter figures last year included 11 cents per share of extraordinary profit and $1.6bn in additional Windows and Office revenue for coupons issued to consumers affected by development delays.

Microsoft shares had risen six percent this week on expectations of a strong result. In after-hours trade, Microsoft shares fell to $30.35 after closing at $31.80 on the Nasdaq.

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