Updated from 10:35 a.m. EDT Microsoft ( MSFT) shares fell Friday after it reported fourth-quarter earnings late Thursday that missed estimates by a penny on stronger-than-expected revenue and raised its revenue guidance. As expected, the software giant also lowered guidance for fiscal 2005 earnings to reflect its plan announced earlier this week to pay out some $75 billion of its cash to shareholders. In recent trading, Microsoft was off 81 cents, or 2.8%, to $28.19 a share. Under generally accepted accounting principles, Redmond, Wash.-based Microsoft earned $2.69 billion, or 25 cents a share, in the fourth quarter, which includes a stock-based compensation charge of 5 cents a share and a 2-cents-a-share tax benefit from the reversal of previously accrued taxes. A year ago, Microsoft posted fourth-quarter net income of $1.48 billion, or 14 cents a share, which included stock-based compensation charges of 4 cents a share and a 5-cents-a-share legal charge. Excluding charges and the tax benefit, Microsoft earned pro forma net income of 28 cents a share in the fourth quarter vs. 23 cents a share pro forma net income a year ago. That missed the consensus estimate gathered by Thomson First Call of 29 cents a share but came in line with the company's target of 28 cents a share, excluding stock-based compensation, for the fourth quarter ended in June. Fourth-quarter revenue rose 15% to $9.29 billion from $8.07 billion a year earlier, and 1.2% from $9.18 billion in the previous quarter. That beat the consensus estimate of $9 billion for the fourth quarter and the company's targeted range of $8.9 billion to $9 billion. Curt Anderson, senior vice president of investor relations, said the light earnings were the result of lower-than-expected investment income as Microsoft rotated into more liquid short-term investments to prepare for its plan to distribute some of its enormous cash balance. Investment income fell 17.3% from a year ago to $570 million. But "on an operating basis, we had a phenomenal quarter," Anderson added, noting that six out of the company's seven business units delivered double-digit sales growth year over year. He called the fourth quarter a "fantastic finish to a fantastic year." In the rush to parse the complex financial results, some investors may not have noticed that the company was surprisingly upbeat about the IT spending environment, future PC unit shipments and server shipments. "This augurs well not only for Microsoft, but for the rest of the industry," said Lehman Brothers analyst Neil Herman. Herman also noted that Microsoft's cash flow from operations for the quarter would have been $4.2 billion, up 57% on a year-over-year basis, excluding onetime payouts to Sun Microsystems ( SUNW) and the European Union. " Even more importantly, Microsoft's cash flow from operations, adding back the one-time payments to Sun and the EU, for the complete year would have been approximately $17.2 billion, up 9% vs. the prior year," he wrote in a note to clients. (Lehman Brothers has received non-investment banking income from Microsoft.) Perhaps to put things in perspective, CFO John Connors noted in a postclose conference call that for the full year, Microsoft posted a whopping $4.65 billion jump in revenue -- roughly the equivalent of two Yahoo!s ( YHOO ) or two eBays ( EBAY ) . "We are poised for strong growth in the mid- to long-term if we continue to execute well," Connors said. The company will spend its July 29 analyst day focusing on how Microsoft is growing through innovation, he added. Lower investment income also prompted Microsoft to lower guidance. For the fiscal first quarter, which just began July 1, Microsoft expects to earn 30 cents a share, excluding a 5-cents-a-share stock compensation charge, on revenue of $8.9 billion to $9 billion. Analyst estimates called for first-quarter earnings of 32 cents a share on revenue of $8.8 billion. The company also updated its outlook for fiscal 2005 to account for the lower interest income it will earn after it spends down its cash -- which ballooned to more than $60 billion at the end of June from $56 billion at the end of March -- under a three-pronged plan announced Tuesday. Under that plan, Microsoft will pay out a special one-time $3-a-share dividend, double its regular dividend on an annual basis, and buy back up to $30 billion shares of stock over the next four years. As a result, Microsoft lowered its outlook for fiscal 2004 earnings to a range of $1.21 to $1.24 a share, excluding stock-based compensation, down significantly from its previous range of $1.31 to $1.33 a share, excluding stock compensation. But Microsoft actually raised its fiscal 2004 revenue target to a range of $38.4 billion to $38.8 billion, up from $37.8 billion to $38.2 billion. That represents growth of about 4.7%, up slightly from the roughly 4% growth projected previously. The latest consensus estimate called for fiscal 2005 earnings of $1.34 a share on $38.6 billion in revenue. Many analysts discounted Microsoft's previous revenue as too low, especially considering that the company initially projected single-digit revenue growth for fiscal 2004 and instead delivered 14% growth. Connors said Microsoft expects improved corporate spending to continue in the first half of fiscal 2005 and then moderate in the second half as the company hits higher comparables. In particular, in fiscal 2005, the company will not enjoy the benefit of exchange-rate fluctuations that boosted results to $1.1 billion in fiscal 2004. In addition, Microsoft expects PC growth to slow. Total PC shipments worldwide grew 12% in the fourth quarter but are expected to decline to 7% to 9% in fiscal 2005, Microsoft estimated. Server shipments are expected to grow 13% to 15% for the year. Microsoft also delivered a stronger-than-expected increase in unearned revenue -- a key measure of how many customers are renewing their contracts to buy Microsoft software on a subscription basis. Unearned, or deferred, revenue rose about $651 million from the end of March to $8.18 billion. That far exceeded the $300 million to $350 million jump expected by analysts. Connors said he expects unearned revenue to fall $200 million to $300 million to reflect a seasonal decline in billings. But unearned revenue should reach $8.6 billion by the end of the year, he projected even as he reiterated that a large chunk of customers who bought subscriptions a couple of years ago are not expected to renew them. In the fourth quarter, Microsoft's Information Worker unit -- a cash cow representing sales of its Office software suite -- posted a 23% increase in revenue from a year ago, to $2.879 billion. Microsoft's other cash cow, its Client or Windows operating system unit, posted a 9% year-over-year jump in revenue to $2.754 million. Server and Tools sales grew 20% from a year earlier to $2.306 billion, driven by continuing demand of Windows Server 2003. Microsoft's online unit, MSN, posted a 5% increase in revenue to $588 million and crossed a milestone by completing its first profitable year, with operating income of $121 million. Microsoft's Home and Entertainment division, including the Xbox video-game business, showed a modest 3% increase in sales to $499 million. The unit's operating loss ballooned 38% in the quarter, to $399 million. Revenue growth moderated while losses increased because Microsoft cut prices on its Xbox, which is typical for this stage of the console cycle. Microsoft loses money on every Xbox console sold. Microsoft's Business Solutions unit, a weak spot in the third quarter, reported a 9% increase in revenue to $196 million, while shrinking its operating loss 42% from a year ago to $42 million. The unit, which represents sales of applications for small- and medium-sized businesses, saw strengthening sales of Microsoft customer-relationship management software in the U.S., where sales were light a quarter earlier.