Microsoft Motors Along

The weak performance by the home and entertainment unit was partially offset by somewhat better-than-expected sales of business software, particularly SQL Server 2005, the newest version of Microsoft's database, which grew by 20%.

Shares of Microsoft have been stuck in the doldrums for three years, generally trading between $24 and $28 despite revenue growth and strong cash flow and a larger dividend. Some analysts figure that 2006 could be a breakout year because the company has its largest lineup of new products in some time.

Windows SQL Server 2005 debuted in November, and more importantly, Microsoft expects to ship Vista, a new version of its franchise-defining Windows operating system, and a new version of the Office productivity suite during the second half of the year. Although there has been speculation that the Vista launch could slip into 2007, CFO Chris Liddell stuck to the second-half estimate, although he declined to be more specific about the timing when asked on a conference call following the earnings announcement.

The company said its client division, which sells Windows posted revenue of $3.45 billion, for growth of 8.3%, and posted a profit of $2.63 billion, which was about what the company had forecast, according to Colleen Healy, senior director of investor relations. The Information Worker group, which sells the Office suite, grew by 5.5%.

Liddell said PC sales should grow by a bit more than the company had expected earlier; Microsoft now foresees computer sales increasing by 12% to 14% during the year, and spending on information technology will remain "healthy" he said. Because Microsoft's software ships on more than 90% of the world's PCs, the company estimate for its sales is closely watched.

MSN, Microsoft's entry in the highly competitive world of Internet searching and advertising did not do as well as the company's core business groups. Its revenue declined by 2% and profit plunged by 55% to $58 million.

Microsoft Business Solutions, which sells business-class software, did better than expected, growing revenue by 17%, with a boost from sales of its latest customer relationship management software.