Microsoft reported a rise in earnings that beat expectations, but the company's shares declined by more than 5 percent as its outlook disappointed investors.
The world's biggest software maker said it brought in a profit of 47 cents a share and achieved sales of $14.454 billion in its fiscal third quarter.
In last year's third quarter, Microsoft earned 49 cents a share on sales of $14.398 billion.
Analysts polled by Thomson Financial expect profit of 44 cents per share on sales of $14.496 billion.
In its fiscal fourth quarter, the company foresees earnings 45 cents to 48 cents a share on sales of $15.5 billion to $15.8 billion. Estimates put fourth-quarter earnings at between 45 cents and 48 cents a share, and sales at $15.558 billion.
Shares of Microsoft were down more than 5 percent in extended electronic trading after finishing regular market hours up 1.11 percent at $31.80.
The stock fell 20.3 percent in the third quarter.
The company forecast next fiscal year's earnings to rise by 13 percent to 18 percent, predicting continued strength from its main software businesses as it aims to bolster its Web unit with an acquisition of Yahoo.
Microsoft projected earnings per share in fiscal 2009 starting in July to be in a range of $2.13 to $2.19 per share. Microsoft called for revenue of $66.9 billion to $68.0 billion next year.
Wall Street analysts, on average, are forecasting Microsoft to earn $2.10 per share in fiscal 2009, with estimates ranging from $2.00 to $2.20 per share, on revenue of $66.5 billion, according to Reuters Estimates.
"I'm not happy that the stock is trading down. They beat, it's just very odd. Revenue was in line and EPS beat by 3 cents. It looks like the EPS surprise was XBox. There was no revenue upside which doesn't make any sense. I think people were looking for some upside on the revenue side," said Senior Analyst Jane Snorek of First American Funds.
"In the next quarter they raised their revenue above the Street range but lowered their EPS to the bottom range of where people were. That could be a problem. They lowered next quarter by a penny and a half...which is bad," Snorek said.
The world's largest software maker reported results two days before a deadline set by Chief Executive Steve Ballmer for Yahoo's board to accept Microsoft's unsolicited takeover offer or face a proxy fight.
In the last few days, Ballmer has reiterated that Microsoft has no plans to raise its cash-and-stock offer for Yahoo, now worth $44.1 billion, saying the software company would even walk away from a deal if the two sides could not agree on a price.
Yahoo's board of directors has said Microsoft's offer undervalues the company, while its management has insisted it is not against selling to Microsoft, but not at the price it is offering.
- Reuters contributed to this report.