Microsoft's net income fell 28% year on year for its 2007 second fiscal quarter, as it spent ahead of its mass market launch of Windows Vista this month.
Revenue was up 6% despite the fact that the company deferred $1.64 billion (£833m) of revenue and operating income from its second quarter to its third because of Windows Vista and Office 2007 coupons issued over the winter holidays.
For the second quarter ended 31 December 2006, Microsoft reported revenue of $12.54 billion on net income of $2.63 billion, or $0.26 earnings per share (EPS). Both revenue and EPS were ahead of estimates from Thomson Financial analysts, who predicted Microsoft would earn $12.1 billion, or $0.23 per share.
However, while revenue was up, net income and EPS were down for the same time period last year, when Microsoft reported revenue of $11.84 billion and net income of $3.65 billion. Analysts were expecting a drop in earnings for the vendor as it gears up for the biggest consumer release of its Windows operating system in five years next Tuesday.
Microsoft has been spending a considerable amount of money to market Windows Vista, and will hold launch events around the world on Monday and Tuesday to mark the consumer debut of the OS.
The drop in net income also can be attributed to a pause in demand for Windows and other products as consumers prepare for the release of Vista, analysts said.
The deferral of revenue and operating income, as well as the deferral of $1.13 billion of net income and $0.11 of diluted EPS to the second quarter are due primarily to technology guarantee programs Microsoft unveiled on 24 October 2006, for Windows Vista and Microsoft Office, Microsoft said.
Those programs provided customers purchasing new PCs capable of running Windows Vista with coupons to buy discounted upgrades to Vista and Office 2007 when they became available on Jan. 30. Microsoft originally expected to have both software packages out in time for the busy holiday shopping season in 2006, but had to delay both releases.