Shares of the world's largest software maker fell 1.5 percent in after-hours trading after it set a current-quarter revenue target below Wall Street expectations.
Microsoft will debut Xbox 360 November 22, the first of a number of key product launches over the next year. Chief Financial Officer Chris Liddell told Reuters Microsoft aimed for more of a "gradual ramp" of Xbox sales to avoid running out of machines early after the launch.
"The analysts were expecting more of a launch spike than we were," Liddell said, "For Xbox 360 we've taken a deliberate approach," rather than having supply dry up early.
Strong sales of personal computers, which Liddell saw rising 9 percent to 11 percent in the year to June 2006, drove results in the September-ending fiscal first quarter.
Net income reached $3.14 billion, or 29 cents per share, compared with $2.53 billion, or 23 cents per share, a year earlier, which included a 3 cent charge for a settlement with Novell Inc.
Excluding a legal settlement charge with RealNetworks Inc, Microsoft earned 31 cents per share in the first fiscal quarter, topping analysts' average expectations by a penny.
Revenue rose 6 percent to $9.74 billion from $9.19 billion, just behind Wall Street expectations.
"We'd hoped to see a little more upside," said Brendan Barnicle, an analyst at Pacific Crest Securities.
Microsoft said it was on track to ship between 4.5 and 5.5 million Xbox 360 consoles the fiscal year to June 2006.
Analysts said a sales "ramp" of Xbox consoles reflected limited production capacity.
Microsoft forecast revenue in the December-ending quarter of $11.9 billion to $12.0 billion and diluted earnings per share of 32 cents, or 33 cents. Analysts had expected revenue of $12.26 billion in the December quarter.
"I think the big thing is the second quarter sales and earnings being below expectations," said Tim Ghriskey, chief investment officer of Solaris Asset Management.
Microsoft shares fell 38 cents, or 1.5 percent, to $24.47 in after-hours trade.
To appease investors worried whether Microsoft can turn its upcoming releases into a growth story that helps its shares break out of last year's $24 to $30 range, the company announced on Thursday that it would accelerate its stock repurchase plan, aiming to finish the remaining $19 billion buy-back no later than December 2006.