Microsoft posted earnings and revenue that outstripped estimates Thursday, but reported a dip in quarterly sales of its core Windows operating system, signaling a recent downturn in PCs.
Overall, the tech titan and Dow component reported fiscal third-quarter earnings of 61 a share. Microsoft earned 45 cents a share during the same period a year earlier.
Sales for the most recent quarter rose to $16.43 billion, up from $14.5 billion last year, thanks to strong sales of Office and Xbox game system.
Microsoft has sold a record-breaking 350 million licenses for its Windows 7 operating system since launching it 18 months ago, but demand appears to be waning in an uncertain economy.
The company was seen earning 56 cents a share on revenue of $16.19 billion, according to a consensus estimate from Thomson Reuters.
Microsoft added that it sees 2012 operating expense up 3 to 5 percent from its 2011 guidance.
Shares of Microsoft slipped almost 2 percent after edging higher in extended trading Thursday. Get Real-Time Quotes for Microsoft
The shares closed at $26.72 in the regular New York Stock Exchange session. Volume exceeded 71 million shares before the closing bell.
"We delivered strong financial results despite a mixed PC environment, which demonstrates the strength and breadth of our businesses," said Peter Klein, CFO of Microsoft, in a prepared statement. "Consumers are purchasing Office 2010, Xbox and Kinect at tremendous rates, and businesses of all sizes are purchasing Microsoft platforms and applications."
However, Investors fear that new gadgets, led by Apple's iPad, are the thin end of the wedge that will one day separate Microsoft from its core customers.
The new tablets "are making a sea of Microsoft customers comfortable using an operating system different than Microsoft's," Michael Yoshikami, chief executive of fund manager YCMNET Advisors, said earlier this week.
"You're going to see a migration away from the monopolistic dominance that Microsoft had, and that's worrisome for them."
Apple's iPad, along with a handful of tablets running Google's Android system, are starting to eat at the edges of Microsoft's domination of personal computers.
PC sales—the most reliable indicator of Microsoft's financial success—fell 1 percent in the first three months of the year, according to one research firm.