Microsoft Revenue: New Vista

Sales of the operating system help boost revenue by 13%.
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Updated from 4:38 p.m. EDT

Despite a $1.06 billion charge,

Microsoft

(MSFT) - Get Report

followed up its previous earnings blast with a solid fourth quarter.

The Redmond, Wash.-based software giant said Thursday that revenue grew to $13.37 billion, a 13% increase from a year earlier, and ahead of analysts' expectations of $13.27 billion.

Including the massive 8-cent-a-share charge for Xbox 360 warranty coverage, the company's net income rose to $3.04 billion, or 31 cents a share, from $2.83 billion, or 28 cents a share, a year earlier.

Excluding the charge, EPS of 39 cents met Street estimates.

As predicted, strong PC sales of an estimated 11% to 13% boosted growth in revenue for the Vista operating system. Strength of that product's introduction had pushed Microsoft's third-quarter EPS in the earlier quarter.

Investors may have been hoping for better momentum; shares of Microsoft were recently off 66 cents, or 2.1%, to $30.85.

Looking ahead, the company projected revenue of $12.4 billion to $12.6 billion for the current quarter. EPS will be between 38 cents and 40 cents. Analysts had predicted $12.5 billion in revenue and EPS of 38 cents, less items.

"We are raising guidance by $300 million and raising

EPS guidance by a penny on the low and high end," senior finance manager Charly Tracy said in an interview.

He attributed the change to the strength of its three-year contracts with businesses -- both renewals and new business. Microsoft's renewal rate overall has improved. The rate one year ago ranged between 2/3 and 3/4, but now stands at a solid 75% rate, Tracy said.

Bookings growth came in above guidance. Tracy said. Bookings overall were up 15%, he said. Bookings of core software were up over 20%.

For fiscal 2008, Microsoft projects revenue of $56.8 billion to $57.8 billion and EPS of $1.69 to $1.73. The Street was expecting earnings of $1.70 a share on revenue of $57 billion.

The company repurchased $7.4 billion worth of stock and paid $952 million in dividends to shareholders during the quarter. Microsoft has completed $25 billion of a $40 billion share repurchase plan announced in 2006, Tracy said.

Online advertising reportedly grew 33%. Online services business revenue grew 19% year over year to $690 million, driven by increases in page views, search and revenue per search

CFO Chris Liddell projected advertising revenue growth in 2008 of 20%.

Microsoft's share of the search market, which had been declining in recent months, picked up 5 percentage points to 13.3% in June. The company performed 380 million more searches than in the prior month, Nielsen/NetRatings reported Thursday. Microsoft took share primarily from

Google

(GOOG) - Get Report

, whose share fell back to 52.7%.