Excluding one-time items, profit totaled 49 cents per share, ahead of Wall Street's view for 46 cents per share, according to Thomson Financial.
Shares rose $1.20, or 4.1 percent, to $30.30 in extended trading after the results were released Thursday. The shares had gained 11 cents to close at $29.10 on the Nasdaq Stock Market.
Microsoft started selling its newest operating system, Windows Vista, to consumers at the end of January. Sarah Friar, an analyst at Goldman Sachs , said Microsoft watchers were worried adoption would be slow.
"Every time I open the paper, there's some article about how bad Vista is," she said. Plus, analysts feared the cost of successfully running Vista was too high for consumers.
News that Apple Inc.'s popular iTunes digital music software didn't work with Vista, and that Dell Inc. customers were clamoring for more PCs with the old operating system, XP, helped fuel concerns, analysts said.
Microsoft quelled some of those fears when it reported its "client" division, responsible for Windows, brought in $5.27 billion in sales, a 67 percent improvement from a year ago.
Microsoft Chief Financial Officer Chris Liddell said the "excellent quarter" was due to better-than-expected sales of Vista and Office. Liddell said Vista beat internal forecasts by $300 million to $400 million, and Office 2007 sales were $200 million better than expected.
Microsoft's entertainment and devices division, which includes the Xbox 360 game console and the Zune music player, posted a 21 percent sales drop to $929 million in an expected post-holiday slump.
Liddell said the company is still on track to sell 1 million Zunes by the end of June and reach the 12 million mark in Xbox 360 units sold since the product hit store shelves in November 2005.
Microsoft trails Google Inc. and Yahoo Inc. in making money from Web searches, but online services revenue edged up 11 percent to $623 million in the quarter. Online advertising revenue grew 23 percent year-over-year, and Liddell said in a conference call with analysts that "revenue per search" is higher than a year ago, when the company was still using a third-party ad platform.
For the fiscal fourth quarter, which ends June 30, Microsoft said it expects to earn 37 cents to 39 cents per share, with revenue of $13.1 billion to $13.4 billion. Wall Street currently expects a profit of 40 cents per share on $13.31 billion in sales.
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