UPDATE 1-Microsoft net falls 28 pct on deferred Vista sales

(Adds earnings outlook, more background)

SEATTLE, Jan 25 (Reuters) - Microsoft Corp. (MSFT.O) posted on Thursday a 28 percent decline in quarterly net profit after the company deferred more than $1 billion in sales from upgrades of its mainstay Windows and Office software.

The world's largest software maker said net profit in its fiscal second quarter ended Dec. 31 totaled $2.63 billion, or 26 cents per diluted share, compared to $3.65 billion, or 34 cents per diluted share, a year earlier. Second-quarter sales rose 6 percent to $12.54 billion.

Analysts, on average, had forecast Microsoft to report earnings per share of 23 cents on sales of $12.09 billion in the quarter, according to Reuters Estimates.

Microsoft plans to release Windows Vista -- the first major upgrade to its computer operating system in more than five years -- and Office 2007 to consumers next week. Investors expect those products, which account for most of Microsoft's profits, to drive sales and earnings in the coming quarters.

The Redmond, Washington-based company has said it would defer about $1.5 billion in revenue and accompanying profit to the March-ending quarter from the past quarter due to how it accounts for upgrade coupons for those products.

Looking ahead to the current quarter, Microsoft forecast diluted earnings per share of 45 cents to 46 cents on revenue ranging from $13.7 billion to $14 billion. Analysts polled by Reuters Estimates, on average, expect earnings of 46 cents per share on sales of $14 billion for the March quarter.

For the full year, Microsoft lifted its earnings outlook range to $1.45 to $1.47 per share from an earlier range of $1.43 to $1.46 per share. The company narrowed its full-year revenue estimate range to between $50.2 billion and $50.7 billion from between $50 billion and $50.9 billion.

Analysts, on average, expect full-year earnings of $1.45 per share on sales of $50.48 billion, according to Reuters Estimates.

In the past quarter, Microsoft delivered strong sales of its Xbox 360 game console. The company said early this month it had shipped 10.4 million Xbox 360 units since its November 2005 launch, exceeding a target to ship 10 million consoles by the end of 2006.

The large installed base of Xbox 360 consoles helped to drive sales of Microsoft Studio's own "Gears of War" game.

Microsoft's server business continued to grow at a rapid clip. Earnings at the server and tools division, which accounts for more than 20 percent of Microsoft sales, got a boost from steady demand for its SQL Server database software.

Shares of Microsoft have risen 12 percent since the start of its second quarter. Prior to the earnings announcement, the stock closed down 64 cents at $30.45 in Thursday Nasdaq trade.

((Reporting by Daisuke Wakabayashi, editing by Braden Reddall; Reuters Messaging: daisuke.wakabayashi.reuters.com@reuters.net; +1 206 652 2326)) Keywords: MICROSOFT RESULTS/

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