Vista gives Microsoft view of record profit

STRONG sales of new PC operating system Windows Vista and a new version of its Office software helped boost third quarter profits at Microsoft by 65 per cent to record levels.

The world's largest software maker reported net profit of 2.47 billion - up from 1.5bn in the same period last year - after up to 855 million of Vista sales were delayed to the third quarter to account for discounted upgrades given to PC buyers.

A move to offer loyal customers discount coupons over the Christmas period helped drive revenue in the three months to March 31 up 32 per cent to 7.2bn from 5.5bn in the same period a year ago.

Microsoft is pinning profit growth over the next few years on the latest versions of its two flagship products and its 2008 trading year, which starts in July, will be the first full year of business to benefit from earnings from sales of computers upgraded with the new software.

The software powerhouse started selling, Vista - its first major update since Windows XP was introduced five years ago - to consumers at the end of January after repeated set backs.

Its new Office software was also launched to coincide with the delayed start date for Vista.

The company, founded by multi-billionaire Bill Gates, said that the delayed impact of Vista marketing costs would dent profits in the fourth quarter, but added that full-year earnings would closely align with expectations.

It said that fourth quarter revenue for 2007 was expected to be in the range of 6.59bn to 6.74bn and operating income would come in at around 2.51bn to 2.61bn.

Microsoft added it predicted revenue for 2008 to be between 28.4bn and 28.9bn, while full-year operating income in the next fiscal year is expected to be around 11bn.

Andy Miedler, a technology analyst at Edward Jones, said: "There was a lot of concern in the marketplace over Microsoft's 2008 outlook. We think this forecast should allay these concerns."

Kevin Turner, chief operating officer at Microsoft, said: "This quarter marked the consumer launches of Windows Vista and the 2007 Microsoft Office system, and we are delighted with the positive customer response these products have received.

"We continue to deliver on our compelling product cycle and build upon strong field sales and marketing execution in order to drive revenue and profit growth for the company."

Chris Liddell, the group's chief financial officer, said he was "extremely pleased" with the delivery of double-digit growth for both revenue and profit, adding that he was looking forward to "a very good finish" to the current trading year with current strength continuing into next year.

Microsoft's entertainment and devices division, which includes the Xbox 360 game console and the Zune digital music player - which is not yet available in the UK - posted a 21 per cent sales drop to around 467m in an expected post-holiday slump.

But Mr Liddell said the company was still on track to sell one million Zunes this year, and reach the 12m mark in the number of Xbox 360 units sold.