Vista helps drive Microsoft profit

Microsoft Corp. posted a 65% rise in quarterly profit Thursday, topping Wall Street estimates, on better-than-expected demand for its new Windows Vista computer operating system.

Shares of Microsoft rose 5% after the announcement, in which the world’s biggest software company also forecast 2008 profit at the midpoint of a range of analyst estimates.

“The strength of Vista is really driving this,” said Kim Caughey, an analyst at Fort Pitt Capital Group. She added that the firm had set “manageable expectations for the full year.”

Microsoft posted net profit of $4.93 billion, or 50 cents a share, in its fiscal third quarter ended March 31, versus profit of $2.98 billion, or 29 cents, a year earlier. Excluding tax benefits and a legal charge, Microsoft earned 49 cents a share, beating the average forecast of 46 cents, according to Reuters Estimates.

Revenue rose 32% to $14.4 billion. Analysts, on average, had forecast revenue of $13.89 billion.

Microsoft deferred about $1.7 billion in revenue from its second to its third quarter to account for upgrade coupons given to customers before the 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 product lines account for more than half of Microsoft’s revenue and most of its profit.

Chief Financial Officer Chris Liddell said consumer sales of Vista surpassed the company’s expectations by $300 million to $400 million. “It’s early days, but we’re encouraged by it,” Liddell said.

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

Microsoft forecast earnings per share of $1.68 to $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 called some analysts’ estimates of Vista sales in fiscal 2008 “overly aggressive.”

For the current quarter, Microsoft said it expected to earn 37 cents to 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.

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