Flagship product

Microsoft shares had earlier fallen 64 cents, or 2.1%, to close on Thursday at $30.45 on the Nasdaq Stock Market in New York.

Windows Vista and Office 2007, the latest editions of Microsoft's flagship products, do not hit the consumer market until Tuesday.

But they have been available to business since 30 November, two-thirds of the way through the firm's second quarter.

Windows runs on nine in 10 of the world's PCs - however Vista's release is two years late and its consumer launch missed the lucrative Christmas sales market.

'Slow half'

After the latest results Microsoft lowered its sales outlook for its entertainment and device division for the second half of its financial year.

"We are just being cautious about the second half," said Microsoft chief financial officer Chris Liddell.

"It was always going to be a slow half. We've done very well in the first half. There is a reasonable amount of inventory in the channel."

He added that Microsoft expected to offset lowered Xbox sales expectations with better sales of higher-margin premium versions of its Windows operating system.