Microsoft profit outlook below expectations

By Daisuke Wakabayashi

LOS ANGELES (Reuters) - Microsoft Corp (MSFT.O) posted a quarterly profit and outlook below Wall Street expectations on Thursday, citing "tough" economic conditions, and its shares fell 6 percent.

The software maker, which is locked in an on-again, off-again pursuit of Yahoo Inc (YHOO.O), said its current-quarter forecast factors in difficult economic conditions continuing for the remainder of 2008 before some improvement in the first half of 2009.

"It's what I would describe as a tough environment. It's clear other companies around us are suffering," Microsoft Chief Financial Officer Chris Liddell said in an interview with Reuters. "It hasn't hurt us significantly."

However, for the current quarter, Microsoft forecast earnings per share to range from 47 cents to 48 cents on revenue between $14.7 billion (7.4 billion pounds) and $14.9 billion, below Wall Street forecasts on average of 50 cents per share in earnings on $15.06 billion in revenue, according to Reuters Estimates.

The world's largest software maker has weathered a soft U.S. economy by ramping up sales to emerging markets and offering a diverse set of products aimed at corporate customers and consumers.

Andy Miedler, analyst at Edward Jones, said Microsoft is not immune from the challenging economic conditions and that it was reasonable for the company to scale down its forecasts.

Particularly hard-hit by the weak U.S. economy, according to Liddell, is online advertising, a business in which Microsoft is already trailing rival Google Inc (GOOG.O).

The search leader also reported quarterly earnings on Thursday, saying its online advertising business has held up well despite weak economic conditions. It reported a weaker-than-expected 35 percent rise in quarterly profit.