Microsoft results disappoint

By Daisuke Wakabayashi

SEATTLE (Reuters) - Microsoft Corp disappointed investors looking for stellar earnings on Thursday with soft Windows software sales and a below-target profit forecast, which overshadowed a strong outlook for next year.

Microsoft, whose shares fell 5 percent in after-hours trade, also pressed its attack on takeover target Yahoo Inc, saying time was of the essence and that the faded Web star needed to forgo "unrealistic expectations" that it is worth more than Microsoft's $44 billion offer.

Chief Financial Officer Chris Liddell acknowledged a weak U.S. economy, but said a slowdown in its domestic market had not hampered Microsoft's diverse set of businesses, which bring in more than 60 percent of its revenue from overseas.

"We're being cautious just like everybody else," Liddell said in an interview. He also said quarterly Windows revenue missed company expectations due partly to an inventory build-up of computers and a lack of progress in the company's ongoing battle against piracy.

Microsoft's profit fell 11 percent to $4.39 billion, or 47 cents per diluted share, in the March quarter on revenue of $14.45 billion. Analysts, on average, expected 45 cents a share on revenue of $14.49 billion, according to Reuters Estimates.

The third-quarter profit a year ago of 50 cents a share included a one-time 11 cent-per-share profit on a $1.6 billion revenue bump from sales deferred by delays in releasing upgrades to the company's Windows and Office software.

Expectations were running high for the latest Microsoft earnings, since it had posted two straight quarters of standout results. The stock had gained 13 percent in the last two weeks. But in after-hours trade, the stock fell to $30.20 from a Nasdaq close of $31.80.

"The real expectation was that they would beat both the revenue and profit number, but the top line was kind of weak," said Sid Parakh, analyst at McAdams Wright Ragen. "So from that standpoint, there is going to be a negative reaction."