Microsoft's full-year guidance was in line with consensus estimates, based upon expectations for strong PC and software sales.
Microsoft said full-year revenue would range between $67.3 billion and $68.1 billion. EPS will be from $2.12 to $2.18. Analysts were projecting a top line of $67.3 billion and EPS of $2.16.
But the company was more cautious with first-quarter projections. Year-over-year comparisons will be difficult because of last year's launch of a popular video game for the Xbox platform, said Chief Accounting Office Frank Brod.
Microsoft projected first-quarter revenue of $14.7 billion to $14.9 billion and EPS of 47 cents or 48 cents. Analysts had been expecting revenue of $15 billion and EPS of 49 cents.
That revelation went a large way to take the stock down more than 5% in after-hours trading to $26.
In its fourth quarter, Microsoft said net income rose to $4.3 billion or 46 cents a share, vs. $3 billion, or 31 cents a share in the year-ago period. Analysts had been looking for a profit of $4.45 billion, or 47 cents.
Revenue grew 18.4% to $15.84 billion, from $13.37 billion in the same quarter of last year. Analysts were expecting a top line of $15.65 billion, according to Thomson Reuters. .
Popularity of the Xbox gaming platform continued, with 1.3 million consoles sold during the quarter. Revenue in the entertainment and devices division jumped 37% to $1.6 billion.
Thin margins on the consoles reduced margins overall, as did investments in data center equipment and hiring, especially outside the U.S.
Overall operating margin was 35.9%, up from 29.8% one year ago.
In a sign of business strength, unearned-revenue balance grew 21% year over year and 26% sequentially to $15.3 billion, driven by high contract-renewal rates, particularly in the servers & tools business, which has had three new server releases since late 2007.
Business contract renewal rates were in line with historical trends, executives said on the conference call. Renewal rates are typically between two-thirds and three-quarters of expiring contracts.
Server revenue grew 21% year over year to $3.7 billion, benefiting from the February launch of Windows Server 2008, to which Microsoft added its virtualization capability in recent weeks.
Client revenue grew 15% to $4.4 billion, as businesses and consumers continue to buy licenses for the Vista operating system and Office 2007 productivity software. Some 40 million Vista licenses were sold during the quarter, bringing the total to 180 million, Brod said.
Business division revenue rose 14% year over year, to $5.3 billion.
Losses in online services more than doubled to $488 million, outpacing revenue growth. Revenue grew 24% to $838 million.
also posted earnings reports late Thursday.