The Redmond, Wash., giant reported net income of $663 million, or 50 cents per share, including a $296 million charge to write off in-process technology acquired with the purchase of WebTV Networks Inc. Microsoft bought WebTV in August for $425 million in cash and stock.
Without the charge, earnings per share were 72 cents, slightly higher than analysts were expecting. Although Microsoft generally tops expectations, analysts were not expecting the company to dazzle them quite as much this quarter.
"It's a September quarter, so the numbers aren't going to set the world on fire," said Neil Herman, analyst at Salomon Brothers in New York.
Sales for the quarter were $3.13 billion, up from $2.3 billion in the year-ago quarter, but below the $3.175 billion the company pulled in the June quarter. Server product sales grew compared to last year, and Microsoft Office 97 sales were strong, the company said.
But going forward, the company expects to see fewer product launches, and added that "operational efficiencies" would not likely continue at the same rate.
Earlier today, the U.S. Department of Justice announced its was seeking a civil contempt charge on anti-trust issues, accusing the company of violating a 1995 consent decree, and asking for a $1 million per day fine against Microsoft.
That drove Microsoft's stock down sharply mid-day, but analysts said it could pick up tomorrow, depending on the first quarter figures.
"I wouldn't be surprised to see the stock rebound (Tuesday) after the quarterly earnings are announced. Everything was going as normal (Monday) until this happened," said Herman.
"What's happening with the stock today is 100-percent related to the DOJ charges."
Microsoft's stock did in fact close up 38 cents at $132.62.