LOS ANGELES (AFX) - Microsoft Corp. said late Thursday its quarterly profit rose 16% on stronger demand for its software used to run corporate servers and personal computers.
However, the world's largest software company issued a profit forecast for the current fiscal quarter and coming year that was below Wall Street expectations, sending its shares down almost 5% in after-hours trading.
Microsoft said net income for the fiscal third quarter ended March 31 rose to $2.98 billion, or 29 cents a share, from $2.56 billion, or 23 cents, a year earlier. The results, which included a legal charge of 3 cents a share, lagged the average estimate of analysts polled by Thomson First Call, who expected a profit of 33 cents.
Sales rose 13% to $10.9 billion as Microsoft, the maker of the ubiquitous Windows PC operating system and Office software applications, saw a sharp rise in demand for other software targeted at corporate users. Its home entertainment unit was helped by higher sales of its Xbox video game player.
Still, the results were at the low end of a forecast issued by Microsoft in late January, and sales fell just short of analyst expectations of $11 billion.
'Microsoft is in a transition period and its important for investors to note that,' said Todd Lowenstein, who co-manages the HighMark Value Momentum fund.
The Redmond, Wash.-based giant is releasing a slew of new products while it readies the next version of Windows, which runs 90% of the world's PCs. Known as Vista, the new operating system - along with the next version of Office - has stoked optimism that the company will see a growth spurt during the next year or two.
The company is 'at the front end of a new product cycle, a very exciting one,' said Lowenstein, whose fund owns Microsoft shares and who remains bullish on the stock.
Sales at the software giant's server business came in solid as it continued to reap the benefits of several new product launches late last year. The company's flagship Windows segment also posted a rise in revenue on higher sales of PCs.
Investors had pushed Microsoft shares up 5% this year on hopes for the new products.
But the company's stock price is just 10% higher than it was three years ago, trailing far behind a 60% gain in the tech-heavy Nasdaq Composite Index.
Last month, Microsoft said it was delaying until early 2007 the release of Windows Vista for consumers, missing out on the important upcoming holiday selling season. The company will ship its version for corporate users in November as planned.
Hot on the heels of news of the delay, the company unveiled a far-reaching restructuring of the unit responsible for its flagship operating system.
Outlook falls short of hopes
For the current fiscal fourth-quarter the company predicted a profit of 30 cents a share on revenue ranging between $11.5 and $11.7 billion. On average, analysts' current estimates put Microsoft's fourth-quarter profit of 34 cents a share on revenue of $11.64 billion.
Offering an initial glimpse into results for fiscal 2007, Microsoft pegged its profit at $1.36 to $1.41 a share on revenue of $49.5 to $50.5 billion.Current estimates for fiscal 2007 are for a profit of $1.53 a share on revenue of $49.53 billion.
Microsoft shares fell in extended trade, changing hands at $25.87. The stock closed the regular session up 0.6% at $27.25. This story was supplied by MarketWatch. For further information see www.marketwatch.com.