Microsoft earnings don't wow

The software maker posts revenue just ahead of estimates, while earnings fall 1 cent short of what Wall Street was expecting. Its outlook is slightly below expectations as well.

Sales of Windows were strong last quarter, but weaker than expected results from online advertising and the Office units led Microsoft earnings to come in a penny per share below analysts estimates. Microsoft also issued an outlook for the current quarter that fell short of what some analysts were projecting.

For the three months ended June 30, Microsoft said it earned $4.3 billion, or 36 cents per share, on revenue of $15.84 billion for the fiscal fourth quarter ended June 30. That was within the range Microsoft forecast in April, although revenue was slightly higher than the $15.7 billion First Call estimate and per-share earnings were a penny lower than First Call projections.

"We're between our high and low guidance," Microsoft chief accounting officer Frank Brod told CNET News. He pointed to particularly strong results in the Windows business, where sales were up 15 percent from a year earlier, ahead of Microsoft's forecast of 7 percent to 11 percent growth. Gains in piracy, particularly in China, helped that. He also noted that Microsoft has now sold 180 million licenses of Windows Vista.

"Our online services was off slightly from what our expectations as well as our business division was down slightly," Brod said.

For the current quarter, Microsoft said it expects per share earnings of 47 cents or 48 cents, on revenue of $14.7 billion to $14.9 billion. Analysts were targeting $15.0 billion in revenue and per-share earnings of 49 cents, according to First Call. The company also lowered its forecast for full-year earnings by 1 penny per share, with its new forecast calling for earnings of $2.12 to $2.18 per share.

Brod noted that the company does plan to continue investing in its online business as well as boosting the amount of money it spends marketing Windows.

"Embedded in our guidance for next year is a significant investment in the marketing program around Windows Vista.

Microsoft shares dipped in after-hours trading, changing hands recently at $26.09, down $1.43, or more than 5 percent, according to Google Finance.

Brod said that Microsoft's bookings pipeline remained strong, although he said Microsoft has seen an expansion of its sales cycle--the amount of time it takes to close deals--as companies spend longer weighing purchases.

"We're seeing the sales process takes a little longer than it has in the past," Brod said. "A lot more debate goes on."

Brod said that IT spending is stronger in emerging markets than in mature ones, but added Microsoft has "not seen a whole lot of pull back in our customer bases."

The earnings report comes amid continued attention over whether Microsoft will choose to seal a deal in the online advertising arena. In addition to its seemingly endless on-again, off-again moves with Yahoo, Microsoft reportedly met Wednesday with Time Warner to talk about its AOL unit.