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Microsoft shares drop as profits dip

File picture. Microsoft shares slipped after the release of quarterly earnings figures
File picture. Microsoft shares slipped after the release of quarterly earnings figures that surpassed forecasts but left it unclear how the software titan will score in the post personal computer era.

Microsoft shares slipped after the release of quarterly earnings figures that surpassed forecasts but left it unclear how the software titan will score in the post personal computer era.

Microsoft reported that its profit dipped in the final three months of last year despite revenues boosted by the release of new-generation Windows software tailored for the world of smartphones and tablet computers.

Profit was down 3.7 percent from the same quarter a year earlier to $6.38 billion, better than most forecasts, while revenues rose 2.7 percent to $21.46 billion, a record for the US tech giant.

Microsoft said the boost in revenues came from pre-sales and upgrades of Windows 8, recognized in the quarter, and gains in business software and other segments.

Shares in the Redmond, Washington-based technology firm were down more than one percent to $27.25 in after-market trading that followed release of the earnings figures for its second fiscal quarter.

Microsoft did not provide specific sales data for the Surface tablet launched late last year or its new Windows Phone 8 system, two keys to the company's future.

Chief executive Steve Ballmer said the company's "big, bold ambition to reimagine Windows as well as launch Surface and Windows Phone 8," had sparked "unprecedented opportunity and creativity with our partners and developers."

Microsoft CEO Steve Ballmer speaks at a special media event in San Francisco on October 29, 2012
Microsoft CEO Steve Ballmer speaks at a special media event in San Francisco on October 29, 2012.

The profit amounted to 76 cents per share -- one cent better than the Wall Street consensus.

Citi analyst Walter Pritchard said Microsoft was on target.

"This was the first time in memory we haven't seen disappointment in the Windows line," he said in a research note, maintaining a buy rating.

Raimo Lenschow at Barclays said the results were "essentially in line with investors' low expectations."

John Ogg at 24/7 Wall Street called it a "mixed" report and said there appeared to be concerns that Microsoft did not offer guidance beyond saying its operating expenses would be $30.3 to $30.9 billion for the fiscal year.

The Windows division saw revenues jump 24 percent to $5.88 billion, while revenue was up 11 percent to $869 million at Microsoft's online services division. To date, more than 60 million Windows 8 licenses have been sold.

The growth in Windows sales was driven by operating system upgrades, sales of Surface tablets, and businesses licensing Windows 8, Microsoft chief financial officer Peter Klein said in a conference call with analysts.

"We learned a lot this quarter; we saw some really great demand for some of the touch devices we brought to market," Klein said.

Microsoft is working with device and chip makers to field a variety of Windows 8 touch-screen devices "at the right price points," he noted.

Microsoft is also beginning to see a pay-off from years spent working to "finely tune" its search engine that powers queries at Yahoo! websites.

Gains in online services, server and enterprise software helped offset a decline in the entertainment division which produces the Xbox console and games.

Microsoft is expected to introduce a successor to the Xbox 360 this year, with the videogame console evolving into a hub for digital home entertainment.

Windows remains the dominant platform for personal computers, but Microsoft has lost ground to Google and Apple in newer devices which use rival operating systems.

The company's search and online services have struggled, but its Xbox is the hottest gaming system in the industry.

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