NEW YORK (AFP) - Microsoft on Friday capped off a rousing week in which it released Windows 7, snagged a deal with Twitter and released quarterly earnings that easily beat the expectations of Wall Street analysts.
The Redmond, Washington-based software giant said net profit fell 18 percent in the first quarter of its fiscal year to 3.57 billion dollars, or 40 cents per share, from 4.37 billion dollars, or 48 cents per share, a year ago.
Revenue declined 14 percent in the quarter which ended on September 30 to 12.92 billion dollars.
It was the third quarter in a row of sliding revenue for the company founded by Bill Gates, but it surpassed analysts' forecasts of 12.37 billion dollars.
Microsoft said its first quarter results would have been even better if it had not deferred 1.47 billion dollars in revenue related to Windows 7 pre-sales and an upgrade option program.
Taking this adjustment into account, earnings were 52 cents per share -- far better than the 32 cents expected by analysts.
Microsoft shares surged 5.38 percent in New York to close at 28.02 dollars.
"We are very pleased with our performance this quarter and particularly by the strong consumer demand for Windows," Microsoft chief financial officer Chris Liddell said in a statement.
"We also maintained our cost discipline, which allowed us to drive strong earnings performance despite continued tough overall economic conditions."
Microsoft has been battered by weak worldwide demand for personal computers and is hoping to get a boost from the release on Thursday of its much-heralded next-generation operating system Windows 7.
In a clear indication of the importance of the Windows 7 release, Microsoft said revenue from its Windows division fell to 2.62 billion dollars in the first quarter from 4.28 billion dollars a year ago.
Speaking in a conference call to financial analysts, Liddell attributed the stronger-than-expected results to "consumer demand for our Windows and XBox products combined with excellent cost controls."
He noted that Microsoft's headcount was four percent lower in the quarter than at the same time last year -- "the first time a reduction of that significance has been achieved in the company's history."
Liddell said business spending has yet to see a broad-based recovery but there is "potential for a corporate PC refresh cycle beginning in calendar year 2010 although it could be gradual and occur over a couple of years."
Microsoft said revenue was up slightly in the server division at 3.43 billion dollars from 3.42 billion dollars a year ago while business division revenue fell to 4.40 billion dollars from 4.95 billion dollars a year ago.
Revenue from entertainment and devices, which includes Microsoft's XBox 360 game console and Zune MP3 music player, was flat at 1.89 billion dollars.
Online services, where Microsoft is battling Google and other Web giants, reported an operating loss of 480 million dollars, up from 321 million dollars a year ago, and revenue fell to 490 million dollars from 520 million dollars.
Microsoft did manage to get a jump on Google online this week by reaching a deal to integrate Twitter messages into its new Internet search engine Bing.
Microsoft unveiled its real-time Twitter search feature at a Web 2.0 Summit in San Francisco and said it also planned to incorporate status updates from social network Facebook into Bing.
Within hours of the announcement by Microsoft, search leader Google said it too had reached an agreement with the popular microblogging service to include Twitter updates in search results.
But while Bing already includes a Twitter search feature, Google said its product will only be ready "in the coming months."
