Microsoft sales and earnings drop less than expected

Deferral of operating system revenue ahead of the Windows 7 launch depressed results, but Xbox earnings sparkled

Microsoft reported revenue that was down 14 percent year-on-year for its first fiscal quarter, with net income down 17 percent -- but it still beat analyst expectations on both counts.

The figures were dragged down by deferral of revenue from sales of Windows 7 to PC manufacturers ahead of the operating system's launch on Thursday, the company said.

Overall revenue totalled US$12.92 billion for the quarter ended Sept. 30, down from $15.06 billion a year earlier. Net income fell to $3.57 billion, for earnings per share of $0.40, down from $4.37 billion a year earlier.

Analysts polled by Thomson Reuters had forecast revenue of $12.32 billion and EPS of $0.32.

The $1.47 billion in deferred revenue would not have been enough to maintain sales in the company's Windows and Windows Live division, where revenue fell $1.66 billion year on year, to $2.62 billion.

However, CFO Chris Liddell put a bright face on it.

"We are very pleased with our performance this quarter and particularly by the strong consumer demand for Windows," he said.

If Microsoft had not had to defer Windows 7 sales, profit would have gone up 8 percent, it said.

Sales in the Servers and Tools Division remained steady at around $3.4 billion, with operating income there up 23 percent to $1.28 billion while operating profit in the Entertainment and Devices Division, which makes the Xbox, doubled to $312 million on sales that were steady at $1.89 billion.

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Peter Sayer

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