msnbc.com staff and news service reports
updated 7/21/2005 5:49:35 PM ET 2005-07-21T21:49:35

Microsoft Corp. Thursday said fourth-quarter profit rose on strong demand for laptops, personal computers and servers, although the software giant forecast revenue for the current quarter that was Wall Street expectations.

The company's stock fell about 2 percent in extended-hours trading after the results were announced.

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

Redmond, Wash.-based Microsoft said it had a net profit of $3.70 billion, or 34 cents per share, in the fiscal fourth quarter ended June 30, up 38 percent from net profit of $2.69 billion, or 25 cents per share, a year earlier. Revenue rose to $10.16 billion, up 9.4 percent from $9.29 billion.

After adjusting for one-time legal expenses and a tax benefit, the company earned 30 cents a share in the quarter, compared with a consensus estimate of 28 cents, said Brendan Barnicle, an analyst at Pacific Crest Securities in Portland, Ore. He said the stock was down mainly due to the company's cautious guidance for the current quarter.

Microsoft shares fell 44 cents to $26 on the Inet electronic brokerage immediately following the announcement, down from their Nasdaq close of $26.44.

"These results provide solid momentum heading into fiscal 2006, which is shaping up to be a strong year for growth and investment,"  Chief Financial Officer Chris Liddell said in a statement.

He referred to a strong "multiyear product pipeline" that is expected to feature a new version of the Windows operating system, the Xbox game console and other key products.

The company projected revenue growth of slightly more than 10 percent to about $44 billion for the fiscal year that began July 1.

The company expects to earn between 29 cents and 31 cents a share for the current quarter, on revenue of $9.7 billion to $9.8 billion. Analysts had been projecting earnings of 30 cents per share and revenue of $9.95 billion, according to Reuters Estimates.

For the full year ending in June of 2006, Microsoft expects revenue of $43.7 billion to $44.5 billion and earnings of $1.27 per share to $1.32 per share, roughly in line with expectations.

That compares with net income of $12.3 billion or $1.12 per share on revenue of $39.8 billion for the year that just ended.

Microsoft said global sales of both personal computers and back-end servers have been growing at a double-digit rate over the past year, and the company also benefited in the latest quarter from a strengthening of the euro against the dollar. The company's were results by expenses related to its long antitrust battle including $626 million for a settlement with rival IBM Corp.

But that unusual expense was offset by an unusually low effective tax rate of only 4 percent in the quarter, compared with 26 percent for the full fiscal year. Microsoft said the Internal Revenue Service reversed $776 million in taxes for 1997-99 in a settlement of an audit. The company recorded another $179 million benefit by repatriating some foreign earnings.

Barnicle said Microsoft's cautious guidance for the current quarter was not surprising, but he noted that the company also reported an "enormous" amount of deferred revenue, which has been collected but is set aside for future quarters because Microsoft sells many products on a licensing basis covering a year or more.

Reuters contributed to this report.

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