Microsoft Corp. (MSFT) said on Thursday its quarterly earnings rose 81 percent, but forecast weaker-than-expected profit in the current business year as long-term corporate contracts expire and investment income slows, sending its shares down about 2 percent.

The world's largest software maker also said slightly slower personal computer sales growth projected at 7 percent to 9 percent in the year to June 2005, would also make it difficult to match its 14-percent revenue growth in fiscal 2004 since PC sales drive sales of its Windows operating system.

"We think the 7 to 9 percent growth is quite respectable, given the strength of fiscal (2004), and the resulting tough comparables," Microsoft Chief Financial Officer John Connors told analysts in a conference call.

Connors also cautioned that Microsoft's overseas sales were unlikely to be boosted this year by the effects of a weaker dollar, as they had been in the past year.

Spooked by the company's outlook for the current quarter and fiscal year, investors sold shares in Microsoft in after-hours trade. The stock fell as much as 5 percent, but recovered to trade down 2 percent from the Nasdaq close of $29.00.

At $28.35, Microsoft shares are back to where they were on Tuesday before the company announced a plan to distribute $75 billion in cash over the next four years.

The payout would hurt Microsoft's investment income as it moves its cash, which stood at $60.6 billion at the end of the latest quarter, into short-term investments to prepare for the payout, said Connors.

That effect is particularly true for the $32 billion one-time dividend that Microsoft will pay, subject to shareholder approval, by the end of the year, he said.

"I think maybe there was more of a hit than expected on the investment income side," said Alan Davis, analyst at McAdams Wright-Ragen.

The Redmond, Wash.-based company reported a net profit of $2.69 billion, or 25 cents per share, including items, for its fourth fiscal quarter ended June 30, compared with a profit of $1.48 billion, or 14 cents per share, a year earlier.

Revenue rose to $9.29 billion from $8.07 billion.

Excluding stock-based compensation and a one-time tax benefit, Microsoft posted a profit of 28 cents per share, in line with analysts' expectations.

For the current quarter ending in September, Microsoft projected a profit of 25 cents per share, including a 5-cent stock compensation charge in its first fiscal quarter ending in September, on revenue of $8.9 billion to $9.0 billion.

Analysts on average, had been looking for first-quarter earnings per share of 32 cents, excluding items, on revenue of $8.79 billion, according to Reuters Estimates.

Two years ago, Microsoft signed many of its corporate customers to long term contracts as it shifted a new licensing plan that encouraged business customers to pay for software over time rather than for each version of upgrade.

As those contracts mature and expire this year, Microsoft has recognized more than $1 billion in revenue and said it expected about a tenth to a third of those customers to renew, creating a tough comparison for fiscal 2005.

"Fiscal 2005 is a unique year, but we're looking to be pretty confident," Di Valerio told Reuters.

For the fiscal year, Microsoft said it is expecting a net profit of between $1.05 and $1.08 per share, compared with its previous outlook for a profit between $1.16 and $1.18 per share.

Excluding equity compensation, Microsoft expects fiscal 2005 income to be $1.21 to $1.24, below the $1.34 that analysts had projected and below its profit excluding items in the past fiscal year.

In the latest quarter, all of Microsoft's seven main business divisions posted growth, with sales of server software for networked computers and its Office family of products driving much of the gains.

Sales in the Windows division grew 9 percent to $2.75 billion, Server and Tools division sales grew 20 percent to $2.3 billion and Office product sales jumped 23 percent to $2.9 billion.

Sales of software to small businesses grew 9 percent to $196 million, the MSN Internet division posted revenue of $588 million after growing 5 percent. Software sales for mobile phones grew 59 percent to $70 million.

Home and Entertainment division sales, which include the Xbox (search) video game console, grew 3 percent to $499 million.

Microsoft said it had shipped 15.5 million Xboxes worldwide since the console's late-2001 launch, and it expects to exceed 20 million in the new fiscal year. It also projected growth of at least 50 percent for its Xbox Live online gaming service, to more than 1.5 million subscribers.