Microsoft's profits disappoint

Microsoft disappointed investors looking for stellar earnings with weak Windows software sales and a below-target profit forecast.

The software giant also pressed its attack on takeover target Yahoo, saying time was of the essence and that the faded Web star needed to forgo "unrealistic expectations" that it is worth more than Microsoft's £22 billion offer.

Chief Financial Officer Chris Liddell acknowledged a weak US economy, but said a slowdown in its domestic market had not hampered Microsoft's diverse set of businesses, which bring in more than 60 per cent of its revenue from overseas.

"We're being cautious just like everybody else," Liddell said in an interview. He also said quarterly Windows revenue missed company expectations due partly to an inventory build-up of computers and a lack of progress in the company's ongoing battle against piracy.

Microsoft's profit fell 11 per cent to £2.2 billion, in the March quarter on revenue of £7.3 billion.

Expectations were running high for the latest Microsoft earnings, since it had posted two straight quarters of standout results, but its shares fell five per cent in after-hours trade.

Microsoft, which has set a Saturday deadline for Yahoo to reach a deal, said it would consider its alternatives including going hostile or withdrawing its offer if the two sides don't make progress toward an agreement by this weekend.

"Speed is of the essence for the deal to make sense," CFO Mr Liddell said. "Unfortunately, the transaction has been anything but speedy and has been characterised by unrealistic expectations of value."

In the last few days, Chief Executive Steve Ballmer has reiterated Microsoft has no plans to raise its offer, which the Yahoo board has spurned, saying it significantly undervalues the company.

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