Microsoft Sales Growth Is Slowest in Five Years

Microsoft Corp. reported the slowest sales growth in five years Thursday, but said new products would drive better results in the next 15 months.

The world’s largest software company matched earlier projections with fiscal third-quarter profit that nearly doubled to $2.6 billion, or 23 cents a share, even as its sales increase narrowed to 5%, below previous forecasts.

Microsoft’s $9.62 billion in revenue included just 2% growth in its biggest divisions, those selling Windows PC software and Office programs.

Shares dipped 54 cents to $24.45 on Nasdaq, but then gained 14 cents in after-hours trading after the earnings announcement.

“People are a little puzzled about the optimism,” said analyst Rick Sherlund of Goldman Sachs. “Nevertheless, it’s a positive for the stock.”

Demand in the last three months was hurt by businesses moving away from annual contracts for updating their software, a trend Microsoft said could be reversed as customers get familiar with the next version of Windows, due in late 2006.

That shift helped explain an 18% drop in revenue from Microsoft’s direct sales of Windows to businesses and consumers, a falloff that Microsoft senior director of investor relations Curt Anderson said was “a little steeper than expected.” Sales to computer makers, which account for 80% of Windows revenue, rose 7%, less than the 10% increase in PC shipments.

Although the quarter’s results disappointed some analysts, Microsoft gave an upbeat forecast for the quarter ending in June and for the following year, which will include a new version of the Xbox gaming console.

Anderson said sales should top $10.1 billion in the fourth quarter and grow 10% in fiscal 2006.