Updated from 5:41 p.m. EDT

Microsoft ( MSFT) beat the Street's first-quarter earnings expectations by a penny Thursday, but sales and its second-quarter outlook were slightly below analysts' estimates.

The stock fell 37 cents, or 1.5%, in recent after-hours trading to $24.48 on Instinet; shares closed the regular session down 26 cents, or 1%, at $24.85.

The world's largest software maker earned $3.14 billion, or 29 cents a share, in the first quarter, compared to $2.53 billion, or 23 cents a share, in the same period a year ago.

First-quarter earnings this year included a charge of 2 cents a share for a legal settlement with RealNetworks ( RNWK), while last year's results included a charge of 3 cents a share for a legal settlement with Novell ( NOVL).

The consensus estimate gathered by Thomson First Call, which for the first time includes stock-based compensation but did not include the RealNetworks settlement, called for first-quarter earnings of 30 cents a share. When adding back the RealNetworks charge, Microsoft beat the consensus estimate by a penny. The company's guidance called for earnings of 29 cents to 31 cents a share.

First-quarter revenue rose 6% to $9.74 billion from $9.19 billion a year earlier. That was slightly shy of the consensus estimate of $9.78 billion for the first quarter but within the company's targeted range of $9.7 billion to $9.8 billion.

Looking forward, Microsoft said it expects to earn 32 cents to 33 cents a share, including stock compensation, on revenue of $11.9 billion to $12 billion in the second quarter of fiscal 2006, which began Oct. 1. That's short of analyst estimates calling for second-quarter earnings of 35 cents a share including stock charges on $12.29 billion in revenue.

The fiscal second quarter includes the crucial holiday sales season and will feature a couple of major product launches, including the latest version of its SQL Server database and next-generation Xbox 360 video-game console. While Xbox 360 will drive revenue growth, it will be a drag on earnings because Microsoft initially will lose money on every console sold.

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