Microsoft’s revenues and earnings both grew more strongly than expected in the latest quarter as the US software company prepared for the most important new product launches in its core PC business in more than a decade.

The results were boosted by solid sales in two of its newer businesses, servers and video games, as well as a decision to put off some of the marketing around its new products until the final months of the year.

Overall revenues climbed 11 per cent to $10.8bn, slightly above the $10.7bn Wall Street had expected. Net income also rose 11 per cent to $3.5bn, or 35 cents a share, ahead of the expected 31 cents a share.

The higher revenues were boosted by sales of the SQL Server database software and games for the new Xbox 360 console, said Chris Liddell, chief financial officer.

While Microsoft had been expected to report a drop in its profit margins as it geared up for the launch of Windows Vista and the latest version of Office, Thursday’s figures showed little change from a year before, with the operating margin steady at 41.4 per cent.

That reflected the decision to defer marketing costs, as well as greater success than expected in bringing down manufacturing costs for the new Xbox games console, Mr Liddell said. Launched late last year, the Xbox 360 has now sold 6m units.

Fears about sharply escalating costs, tied both to new product launches as well as higher spending on online services, sent a shockwave through Wall Street six months ago. However, Microsoft has since been able to calm those concerns, leading to a 30 per cent rally in its shares to a new two-year high.

The server division continued to power Microsoft’s overall results in the latest quarter, reporting a 17.5 per cent jump in revenue, to $2.5bn, and a 36 per cent rise in operating income, to $827m. The Xbox 360 lifted revenues in the entertainment and devices division by 70 per cent, to over $1bn, while losses fell from $173m to $96m as the costs of the console fell and sales of profitable games rose.

Meanwhile, the core client and business divisions each saw growth of under 5 per cent ahead of the coming big product launches. The online service division continued to shrink, with sales falling by nearly 5 per cent, as Microsoft continued to reposition it to compete better with Google and Yahoo!

On Thursday, Microsoft also confirmed that the imminent launch of the long-awaited Windows Vista operating system would force it to defer 1.5bn of revenues from the current quarter into the following one, depressing both its reported revenues and earnings for the period.

The deferred revenue reflects an attempt to support PC sales during the holiday season by issuing coupons to consumers who buy new PCs, enabling them to upgrade to Vista later. This would have no overall impact on full-year results, Mr Liddell said.