Microsoft hobbled fast enough past slow PC sales to meet expectations for its fiscal 2001 third quarter The software giant earned $2.45bn (£1.69bn) or 43 cents a share, compared with $2.3bn, or 43 cents a share, a year earlier. A consensus of analysts polled by First Call anticipated 42 cents a share. Revenue grew 14 percent to $6.46bn, up from $5.66bn a year earlier. Analysts had expected sales in the $6.3bn to $6.4bn range. Revenue grew beyond expectations, with many analysts reducing projections to the $6bn range days before Thursday's announcement. Like Intel, which on Tuesday saw an 82 percent year-over-year drop in income, Microsoft's results are closely tied to PC sales. Slow sales throughout the PC industry had been expected to hit the company harder. Analysts estimate about 65 percent of the company's sales and more than 70 percent of profit comes from PC applications and operating systems. Desktop applications such as Office account for more than 50 percent of income. Gartner analyst Chris LeTocq described Microsoft's results as "well-managed expectations." Microsoft chief financial officer John Connors said in a statement, "Results were strong across all businesses and came in a little better than we expected." But he warned that "despite this quarter's solid performance, we continue to be mindful of the current economic climate and the impact it may have on business and consumer demand." Analysts had been watching expectantly for Microsoft to give guidance for the remainder of the company's fiscal year, which ends June 30, and the company obliged. For the fourth fiscal quarter, ending June 30, Microsoft projects sales of $6.3bn to $6.5bn and earnings per share between 41 cents and 42 cents. But that is shy of analysts' consensus of 43 cents, according to First Call. For full-year fiscal 2002, Microsoft expects $28bn to $29bn in revenue and earnings between $1.90 and $1.94 a share. The third quarter gives Microsoft some breathing room after a tough second quarter. Slow PC sales and the cost of rebates for the MSN Internet service contributed to a profit warning for the fiscal second quarter. While the company nudged past reduced second-quarter estimates with earnings of $2.62bn, or 47 cents a share, desktop application sales disappointed, declining 2 percent year over year to $2.49bn from $2.53bn. That weakness persisted in the third quarter, with desktop revenue of $2.4bn compared with $2.3bn a year earlier. Anticipation for Office XP office applications may have contributed to slow sales. Microsoft is expected to ship Office XP to its largest licensees later this month. Retailers will begin offering the successor to Office 97 and 2000 at the end of May. "Those sales are essentially flat for the last year," LeTocq said. "Microsoft has flat revenue growth in a major portion of their business, and they're trying really hard to grow the remaining portion." He noted that desktop applications, which accounted for about 47 percent of Microsoft's revenue during fiscal 2000, dropped from 40 percent to 36 percent of revenue during the third quarter from a year earlier. Sales of Windows 2000 continued to show strong gains, despite slow sales throughout the PC industry. Windows 2000 helped buoy desktop operating system sales to $2bn, from $1.76bn a year earlier. Server software and services sales also increased, to $1.25bn from around $1bn during the year-ago quarter. Original equipment manufacturer (OEM) revenue rose to $1.99bn, from $1.67bn a year earlier. Microsoft's manufacturer customers sell the company's software bundled with their hardware, such as PCs. Internationally, the South Pacific and the Americas accounted for $2.4bn in sales, up from about $2bn a year earlier. Revenue for the Europe, Middle East and Africa region was flat year over year at $1.2bn. Asia saw revenue increase to $836m from $709m during the year-ago quarter. Have your say instantly, and see what others have said. Click on the TalkBack button and go to the ZDNet News forum. Let the editors know what you think in the Mailroom. And read other letters.