Microsoft Sees Strong Sales of Windows XP, Meets Low End of Forecasts

SEATTLE – Microsoft Corp. Thursday posted a smaller quarterly net profit -- the result of legal expenses and a delay in the sale of its stake in online travel firm Expedia Inc. -- but saw strong sales amid the launch of its new Windows XP operating system and Xbox video game console.

For its second fiscal quarter ended Dec. 31, Microsoft posted a net profit of $2.28 billion, or 41 cents a share, compared with $2.62 billion, or 47 cents a share a year earlier.

Including the legal expenses, which amounted to 8 cents per share, Microsoft said its operating profit was $2.84 billion, or 49 cents a share.

That figure topped analyst expectations, which were for a penny or two above the company's official guidance of a profit of 41 or 42 cents a share.

Wall Street tracking firm Thomson Financial/First Call had a consensus estimate of 43 cents a share, but many analysts considered the number unreliable because some analysts polled by First Call had not updated their figures to account for the Expedia delay.

Revenues were $7.78 billion, up 18 percent from $6.5 billion a year earlier, and surpassing the company's official guidance of $7.1 billion to $7.3 billion.

Microsoft also forecast operating income for its current, third quarter would rise slightly but said sales would slip amid the tough economy.

For the third quarter, Microsoft gave guidance for an operating profit of $2.8 billion to $2.9 billion, or 50 to 51 cents a share, on revenues of $7.3 billion to $7.4 billion.

'YET TO SEE RECOVERY' IN MANY WORLD MARKETS

"While we are pleased with our results this quarter, we are concerned about the health of the global economy and have yet to see a recovery in many of the world's largest markets," Chief Financial Officer John Connors said in a statement.

Second-quarter results were boosted partly by Windows XP, which had sold 17 million copies through PC makers and retail outlets since it launched last October. The Xbox had also met expectations, selling 1.5 million units between its November launch at the end of the year, Connors said.

"Additionally, our continued focus on cost control and efficiency really paid off in terms of our operating results," Connors said.

Desktop platforms -- basically the company's Windows personal computer operating system -- saw sales rise 24 percent to $2.5 billion as a better-than-expected year-end PC market gave a boost to Windows XP, which launched last October.

Sales of desktop applications -- Microsoft's largest unit that includes the Office suite of productivity software -- fell 1.4 percent to $2.45 billion.

The hottest area of growth was in the consumer division, which saw sales more than double to $1.2 billion from $506 million a year earlier due to the Xbox video game console and an update to the MSN Internet access service and Web sites.

Microsoft's enterprise segment, which covers software like its SQL database and Exchange e-mail server aimed at corporate networks, grew nearly 4 percent to nearly 1.3 billion, slower than many analysts had expected.

Microsoft's income figures also include investment gains or losses, and for the quarter just ended the company saw such gains total $553 million, down from the $751 million it saw a year earlier.

Microsoft said last month its $650 million deal to sell its Expedia stake to USA Networks Inc. -- which would have added 8 cents a share to earnings -- would be put off until later this year pending USA's agreement to be acquired by Vivendi Universal.