updated 7/19/2007 4:56:52 PM ET 2007-07-19T20:56:52

Microsoft Corp.’s fiscal fourth-quarter profit edged up 7 percent despite a hefty charge to cover the cost of defective Xbox 360 video game consoles.

(MSNBC.com is a joint venture of Microsoft and NBC Universal.)

The world’s largest software maker said Thursday its earnings for the three months ended June 30 climbed to $3.04 billion, or 31 cents per share, from $2.83 billion, or 28 cents per share, during the same period last year.

Results were weighed down by a charge of $1.06 billion, or 8 cents per share, related to the video game console repairs.

In early July, the company said it would extend the warranty on the Xbox 360 to three years after too many succumbed to “general hardware failure,” a vague condition marked by flashing red lights on the front of the console. The software maker said it has fixed problems in the manufacturing process but would not give details.

Excluding this charge, Microsoft would have earned 39 cents per share, in line with Wall Street’s expectations, according to Thomson Financial.

Revenue climbed 13 percent to $13.37 billion from $11.80 billion last year, just ahead of Wall Street’s estimate of $13.27 billion in sales.

Sales in the division responsible for the Windows operating system rose 14 percent to $3.81 billion from $3.35 billion in the year-ago quarter.

The online business saw sales rise in the quarter, but still wasn’t able to turn a profit. The division, which includes Web ad revenue, widened its loss to $239 million from $187 million last year as Microsoft continued to lag Google Inc. and Yahoo Inc. in U.S. search traffic.

“Right now we’re in an investment mode,” Colleen Healy, senior director of investor relations for Microsoft, said of the online business. She said in a phone interview that online advertising revenue rose 33 percent.

The Redmond-based company posted a profit of $14.07 billion, or $1.42 per share, on $51.12 billion in sales for the full fiscal year. Analysts were looking for $1.49 per share on $51 billion in sales.

Microsoft is counting on several big product launches, including an update to its server software, and the pre-holiday release of the much-anticipated “Halo 3” video game, to carry the company to double-digit growth next year.

For the fiscal first quarter ending Sept. 30, Microsoft said it expects to earn 38 cents to 40 cents per share on $12.4 billion to $12.6 billion in sales.

Wall Street is looking for a profit of 38 cents per share on revenue of $12.51 billion.

For full fiscal 2008, the company raised its expectations for earnings per share by a penny, to $1.69 to $1.73 per share, and boosted its revenue forecast to $56.8 billion to $57.8 billion. Previously, the company had estimated revenue at $56.5 billion to $57.5 billion.

The earnings were released after the close of regular trading.

Microsoft shares lost 70 cents to $30.81 in after-hours electronic trading. Earlier, they gained 59 cents, or 1.9 percent, to close at $31.51.

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