Microsoft profit tops Wall St view on Vista sales

Microsoft Corp. (MSFT.O: Quote, Profile , Research) posted a 65 percent rise in quarterly profit on Thursday, topping Wall Street estimates due to better-than-expected demand for its new Windows Vista operating system.

Shares of Microsoft rose 5 percent after the announcement, in which the world's biggest software company also forecast 2008 profit at the mid-point of a range of analyst estimates.

"The strength of Vista is really driving this," said Kim Caughey, analyst at Fort Pitt Capital Group. She added that the company had set "manageable expectations for the full year 2008, which generally allows them some headroom."

Microsoft posted a net profit of $4.93 billion, or 50 cents per diluted share, in its fiscal third quarter ended March 31 versus a profit of $2.98 billion, or 29 cents per share, in the year-ago period.

Excluding tax benefits and a legal charge, Microsoft earned 49 cents per share, beating the average analyst forecast of 46 cents, according to Reuters Estimates.

Revenue rose 32 percent to $14.4 billion. Analysts, on average, had forecast revenue of $13.89 billion, with estimates ranging from $13.73 billion to $14.09 billion, according to Reuters Estimates.

Microsoft deferred about $1.7 billion in revenue from its second quarter to its third quarter to account for upgrade coupons given to customers prior to the January launch of Vista and Office 2007.

Microsoft expects the latest versions of its two flagship products to underpin profit growth over the next few years. Those two product lines alone account for more than half of Microsoft's total revenue and a majority of its profits.

Chief Financial Officer Chris Liddell said consumer sales of Vista surpassed the company's own expectations by $300 million to $400 million.

"There is very good acceptance from a launch perspective for the product. It's early days, but we're encouraged by it," Liddell said in an interview with Reuters.

FORECAST ALLAYS CONCERNS

The company's 2008 business year, which starts in July, will be the first full year of earnings to benefit from consumers buying new computers loaded with Vista and Office 2007, or companies upgrading computer systems.

Microsoft forecast diluted earnings per share of between $1.68 and $1.72 for the coming business year, on revenue of $56.5 billion to $57.5 billion.

Analysts had forecast earnings of $1.69 a share on sales of $56.34 billion, with sales estimates ranging from $55.3 billion to $59.6 billion, according to Reuters Estimates

"There was a lot of concern in the marketplace over Microsoft's 2008 outlook. We think this forecast should allay these concerns," said Andy Miedler, technology analyst at Edward Jones.

Microsoft Chief Executive Steve Ballmer gave investors a reason to pause in February when he said that some analysts' Vista sales estimates in fiscal 2008 were "overly aggressive."

For the current quarter, Microsoft said it expects to earn between 37 cents and 39 cents a share on revenue of $13.1 billion to $13.4 billion. Analysts, on average, were expecting earnings of 41 cents a share and revenue of $13.31 billion.

Liddell said the shortfall in its fourth-quarter forecasts was due to marketing expenses shifted to the current period, but emphasized that it will meet the company's full-year estimates for expenses.

Microsoft shares rose to $30.48 in extended trade. In regular Nasdaq trade, the stock closed up 11 cents at $29.10.

As of Thursday's close, the stock was down 3 percent since the start of 2007, while the S&P 500 had risen 5 percent. (Additional reporting by Sue Zeidler, Gina Keating, Nichola Groom and Lisa Baertlein in Los Angeles and Kenneth Li in New York)