Microsoft Corp's quarterly profit rose 6 percent, meeting Wall Street's modest expectations, helped by strong sales of its popular Office applications package, but limited by only slight gains from its flagship Windows operating system.

Windows sales edged up only 2 percent from the year-ago quarter, in line with limp personal computer sales last quarter. While the rise in Windows sales broke the streak of three straight quarters of declines, it fell short of some analysts' hopes.

We still had Windows miss again, although not by nearly as much as it has the last couple quarters, said Brendan Barnicle, an analyst at Pacific Crest Securities.

They were just in line on EPS, which typically Microsoft beats, said Barnicle. Q1 is seasonally not a big quarter for Microsoft, and this was no exception.

The brightest spot for the world's largest software company was an indication that its perennially money-losing online services unit -- including the MSN Internet portal and Bing search engine -- may have turned a corner.

The unit lost $494 million in the quarter, the lowest loss in the last seven quarters, slowing the flood of red ink that has cost Microsoft more than $5 billion since it launched Bing in mid-2009, as it invests heavily to catch up with Google Inc.

Microsoft's shares, which have traded in the $20-$30 range for the last decade, fell 0.7 percent in after-hours trading, to $26.85. They closed at $27.04 on the Nasdaq.


The Redmond, Washington company reported fiscal first-quarter net profit of $5.74 billion, or 68 cents per share, up from $5.41 billion, or 62 cents per share, a year ago.

That met Wall Street's average estimate, according to Thomson Reuters I/B/E/S. It is the first time in 10 quarters that Microsoft has not exceeded the average estimate.

Overall sales rose 7 percent to $17.37 billion, helped by Office, which remains popular with businesses even in the difficult global economy.

The Office unit posted an 8 percent gain in sales to $5.6 billion, making it Microsoft's biggest-selling and most profitable unit.

The server and tools unit, which sells the server software behind the datacenters enabling cloud or Internet-based computing, rose 10 percent to $4.2 billion, but even that fell short of some analysts' expectations for the fast-growing area of the technology market.

The entertainment and devices unit posted a 9 percent gain in sales, helped by the Xbox, which remains the most popular game console in the United States.

Microsoft said its $8.5 billion deal to buy online chat service Skype, which closed last week, would add about $600 million to expenses this fiscal year. The company now estimates costs of $28.6 billion to $29.2 billion for fiscal 2012, which started July 1.

Microsoft now has a cash hoard of $57 billion, most of which is parked overseas. Faster-growing rival Apple Inc on Tuesday reported it has $81 billion in cash.

(Additional reporting by Lisa Richwine in Los Angeles; Editing by Richard Chang and Matthew Lewis)