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Microsoft 3Q profit jumps 65 percent

SEATTLE (AP) - Microsoft (NASDAQ:MSFT) Corp.'s fiscal third-quarter profit jumped 65 percent, buoyed by sales of its new versions of Windows and Office and by upgrade coupons for the operating system issued over the holidays.

Earnings for the quarter ended March 31 rose to $4.93 billion, or 50 cents per share, from $2.98 billion, or 29 cents per share in same period last year.

Results included legal charges amounting to 1 cent per share, but tax benefits boosted profit by 2 cents per share.

Analysts surveyed by Thomson Financial forecast a profit of 46 cents per share.

Revenue for the quarter rose 32 percent to $14.4 billion. Wall Street was looking for $13.89 billion in sales.

Microsoft started selling its newest operating system, Windows Vista, to consumers at the end of January. Its 'client' division, responsible for Windows, brought in $5.27 billion in sales, 67 percent higher than a year ago.

Microsoft said it deferred $1.2 billion in Windows Vista revenue to the third quarter, to account for upgrade coupons given to PC buyers during the holiday season before the consumer launch of the new operating system. Excluding this figure, client revenue totaled $4.1 billion, 30 percent higher than last year.

Business division revenue, which includes sales of Office 2007, rose 34 percent to $4.83 billion.

Microsoft Chief Financial Officer Chris Liddell said the 'excellent quarter' was due to better-than-expected sales of Vista and Office.

Liddell said Vista beat internal forecasts by $300 million to $400 million, and Office 2007 sales were $200 million better than expected.

The client division sales 'are surprisingly ahead of where we thought they would come in,' said Sid Parakh, an analyst at McAdams Wright Ragen. 'They might indicate Vista is doing fine.'
Microsoft's entertainment and devices division, which includes the Xbox 360 game console and the Zune music player, posted a 21 percent sales drop to $929 million in an expected post-holiday slump.

Liddell said the company is still on track to sell 1 million Zunes this fiscal year, and reach the 12 million mark in Xbox 360 units sold since the product hit store shelves in November 2005.

Microsoft trails Google Inc. (NASDAQ:GOOG) and Yahoo Inc. (NASDAQ:YHOO) in making money from Web searches, but online services revenue edged up 11 percent to $623 million in the quarter. Online advertising revenue grew 23 percent year-over-year, and Liddell said 'revenue per search' is higher than a year ago, when the company was still using a third-party ad platform.

'Monetization of search is increasing with our new adCenter platform,' said the CFO. 'It's still a small base, but it's growing very well.'
Microsoft also said it repurchased more than $6.7 billion in stock during the quarter.

For the fiscal fourth quarter, which ends June 30, Microsoft said it will earn 37 cents to 39 cents per share, with revenue of $13.1 billion to $13.4 billion. Wall Street currently expects a profit of 40 cents per share on $13.31 billion in sales.

For the full 2007 fiscal year, the company raised its guidance, forecasting a profit of $1.48 to $1.50 per share on sales from $50.9 billion to $51.2 billion. Analysts are looking for $1.47 per share on revenue of $50.56 billion.

Microsoft forecast earnings of $1.68 to $1.72 per share for fiscal 2008, with revenue of $56.5 billion to $57.5 billion. Analysts are predicting a profit of $1.69 per share on $56.24 billion in sales.

'I think it's a very good quarter, but more importantly, guidance is essentially in line with what the Street is expecting,' said Sarah Friar, an analyst at Goldman Sachs. (OOTC:GSGRP) (NYSE:GS) 'Everyone was so terrified guidance would have some sort of issue.'
Shares of Microsoft jumped $1.20, or 4.1 percent, to $30.30 in after-hours electronic trading, after adding 11 cents to close at $29.10 on the Nasdaq Stock Market.