Page last updated at 00:08 GMT, Friday, 25 April 2008 01:08 UK

Microsoft sees slide in profits

Microsoft sign
Microsoft made its first unsolicited offer for Yahoo a year ago

Computer software giant Microsoft has seen third quarter profits fall, but beat market expectations.

Profits fell 11% to $4.39bn (2.22bn) in the three months to 31 March from $4.93bn a year earlier. Sales were stable at $14.5bn.

Sales in the division selling Office and other business applications fell, hit by lower demand.

The results come before a deadline the firm has given Yahoo to respond to its $44.6bn-bid for the internet firm.

One factor denting profits was a $1.42bn fine imposed by the European Commission for breaching competition rules.

While the firm predicted stronger sales for the year, its forecast for the current quarter was at the lower end of market expectations, contributing to a 5% fall in the firm's share price in after-hours trading.

On the plus side, the firm's Xbox 360 video game consoles showed a strong performance, helping sales in its entertainment and devices sector grow 68% year-on-year.

Online role

The firm reiterated its commitment to expanding its online presence and its bid for Yahoo.

"With respect to Yahoo we have been clear speed is of the essence," said chief finance officer Chris Liddell.

Microsoft can either withdraw its offer or go directly to shareholders, effectively turning it into a hostile bid.

"With or without a Yahoo combination, Microsoft is focused on the online advertising market," Mr Liddell said.

Analysts have mixed feelings about the impact a tie-up with Yahoo might have.

Andy Miedler, an analyst with Edward Jones said that while the Microsoft Yahoo deal made strategic sense, from a financial perspective, "we're cautious".

"We already think they're paying a high price."

A day earlier Yahoo reported better-than-expected results, seeing profits triple in the first three months of 2008.

Yahoo's board of directors maintains that Microsoft's offer undervalues the firm.

Microsoft's online services saw a 40% rise in sales to $843m in the quarter, but it still falls far behind Google.

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