Microsoft Profit, Revenue Fall but Match Forecasts

Microsoft reported a profit and revenue that were lower than last year but which matched the lowered levels analysts predicted for the company as cost cuts helped to partly offset a sharper-than-expected decline in revenue.

The world's largest software company, which withdrew its profit forecasts in January due to the uncertain economy, also said it expected weakness in its markets to continue through at least the next quarter.

Excluding one-time items, the software giant reported a profit of 39 cents a share in its fiscal third quarter, on a topline of $13.65 billion.

In the same period last year, Microsoft turned in a profit of 47 cents a share on revenue of $14.454 billion.

The company was seen reporting a profit of 39 cents a share on sales of $14.094 billion, according to a Thomson Reuters consensus estimate of analysts who follow the company.

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Microsoft shares , which closed up 0.75 percent at $18.92 on the Nasdaq Thursday, climbed more than 5 percent in the extended session. Get after-hour quotes for Microsoft by clicking here.

Microsoft avoided a steeper drop in profit by slashing costs in several areas, such as sales and marketing, which it cut by 9 percent to $3 billion.

The decline in revenue illustrated the toll the recession has taken on the world's largest software maker, even though Microsoft remains one of the richest and most profitable companies. In January, Microsoft said it needed to resort to its first mass layoffs, cutting 5,000 jobs, and on Thursday it announced it would do away with merit pay increases for employees in the next fiscal year.

Microsoft also did not issue earnings guidance for the rest of the year, and its earnings statement offered no hope for a rebound in the current quarter.

Robert Scoble

Microsoft makes most of its profit selling the Windows operating system and business software such as Office, and those divisions have been hammered over the last six months as consumers and businesses sharply cut their technology spending. The holiday quarter, which ended in December, was the PC industry's worst in six years, according to research groups IDC and Gartner Inc. In the following quarter, computer shipments sank about 7 percent.

Even the brightest spot in the PC market—tiny, recession-friendly laptops known as netbooks—had a downside for Microsoft, because those inexpensive computers run a cheaper version of Windows XP, Microsoft's last-generation operating system.

The Windows division's profit fell 19 percent to $2.5 billion, and its sales sank 16 percent to $3.4 billion in the last quarter.

The division that makes Office saw its profit drop 8 percent to $2.9 billion on revenue that declined 5 percent to $4.5 billion.

Microsoft said the current quarter would probably still be weak in the markets for PCs and computer servers. Other technology companies have offered mixed assessments about whether a recovery is in sight.

- AP and Reuters contributed to this report.

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