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Microsoft lowers forecasts

Despite a rise in profit and sales, the software maker anticipates tough times ahead.

October 24, 2008|Michelle Quinn | Quinn is a Times staff writer.

SAN FRANCISCO — Microsoft Corp. reported a slight rise in quarterly profit and sales Thursday that beat Wall Street estimates, yet the software giant cut its projections in the face of economic uncertainty.

The company also issued an emergency software fix for a security flaw in its Windows operating system.

Microsoft executives said the fiscal first quarter, which ended Sept. 30, started out strong but weakened in September, a trend they have seen continue. Microsoft cut its quarterly and yearly forecast and said it was reining in expenses such as hiring, marketing and travel in anticipation of difficult economic times ahead.

"We cannot control the economy, but we can control our performance," said Chris Liddell, Microsoft's chief financial officer.

Microsoft reported revenue of $15.06 billion, a company record for first quarter and a 9% increase from $13.8 billion a year earlier. Its profit edged up 2% to $4.4 billion, or 48 cents a share, compared with $4.3 billion, or 45 cents, a year earlier.

Revenue from its business division, which includes Office software, rose 20% to $4.9 billion. Sales in Microsoft's entertainment division, which includes its Xbox console, fell to $1.8 billion, from nearly $2 billion.

Sales of Windows for personal computers rose 2%, less than usual, as customers bought more low-cost notebooks that generate less money per copy for Microsoft.

Microsoft said it anticipated earning 51 cents to 53 cents on revenue of $17.3 billion to $17.8 billion in the current quarter. Analysts surveyed by Thomson Reuters had predicted a profit of 55 cents a share on $18 billion in sales.

Microsoft shares gained 79 cents, or 4%, to $22.32 then rose slightly in after-hours trading following the news.

The Redmond, Wash.-based company said it expected to feel the effects of a weakening economy in nearly all aspects of the business except in its entertainment area, where its Xbox 360 game console is picking up market share.

"In some respects, Microsoft is a great macroeconomic indicator because they are so big," said Katherine Egbert, managing director of Jefferies & Co. "They are not immune."

The security fix, which Microsoft called "critical," is for a vulnerability that could affect machines running Windows 2000, Windows XP and Windows Server 2003. Vista and Windows 2008 machines have added protection, but the fix should be applied to them as well, security experts said Thursday.

An attacker using the vulnerability could take control of the affected system remotely, Microsoft said.

The hole is not protected by standard anti-virus protections and is similar to a problem discovered two years ago, raising concerns that it has been exploited by hackers for a while, said Marc Maiffret, director of professional services at the DigiTrust Group, a Los Angeles-based security consulting firm.

"If you don't patch immediately, there's a good chance you could have a computer compromised by this," he said.

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michelle.quinn@latimes.com

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