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Microsoft on Thursday reported stronger sales than expected of its new Vista operating system and Office software, and issued a broadly optimistic outlook for its next fiscal year.

At the same time it held back from a renewed investment war against Google, easing some of Wall Street’s concerns about the prospects for the company’s profits in the coming quarters.

The outlook, together with robust earnings for the latest quarter, prompted a relief rally in Microsoft’s shares, which gained nearly 5 per cent in after-market trading. Revenues of $14.4bn, up 32 per cent from a year before, were around $500m higher than Wall Street had expected. Net income rose 65 per cent to $4.9bn, or 50 cents per share, compared to expectations of 46 cents a share.

The latest figures were boosted in part by $1.7bn of revenue held over from the preceding three months. This related to guarantees that Microsoft had issued to enable PC buyers upgrade to Vista, forcing it to delay some of the revenue until the operating system had been launched.

Even without this, though, revenues during the quarter pointed to a solid start to the most important new product cycle in Microsoft’s core desktop software business for more than five years.

Chris Liddell, chief financial officer, said that sales of Vista were $300-400m higher than expected, while the new Office suite generated an extra $200m. Microsoft’s latest earnings were also lifted by a deferral of some marketing spending, he added, though this would fall in the current quarter instead.

Wall Street had grown cautious about early results from Vista after Steve Ballmer, chief executive officer, cautioned two months ago that some analysts’ expectations were over-optimistic. However, Mr Liddell said on Thursday that those comments had been meant to suggest that Wall Street was underestimating Microosft’s growing dependence on emerging markets, where prices are lower, rather than a more downbeat view of Vista’s prospects.

A year ago, Microsoft shocked Wall Street with plans to ramp up its spending, partly to take on Google and partly to market new products, including Vista and the new Xbox. Concerns about a similar spending binge in its next fiscal year, starting in July, have weighed on the company’s shares.

On Thursday, Microsoft forecast revenues for the next fiscal year of $56.5-57.5bn, above Wall Street’s expectation of $56.2bn. Earnings are set to reach $1.68-1.72 a share, it added, broadly in line with analysts’ expectations. Mr Liddell said the forecast anticipated slower growth in spending than Microsoft had seen in the current fiscal year.

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