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Microsoft defies gravity, despite losses on XBox

Buoyed by strong revenue across a range of its businesses, Microsoft on Thursday reported fourth-quarter financial results that slightly exceeded analysts' expectations.

The company said that despite contracting personal and corporate computing markets, it had continued to find strength in the sales of the new XP version of its Windows operating system, growth of its Office desktop software business and improved performance of a number of its consumer lines, including its MSN online service.

"We're finally really seeing the fruits of the long-term R&D investments Microsoft has been making in its Windows operating system," said John G. Connors, chief financial officer of Microsoft. He also said that the company had paid greater attention than in the past to controlling its expenses.

The largest disappointment for the software publisher was sales of Microsoft's Xbox gaming system, which the company said had sold 3.9 million units by the end of the quarter. Microsoft had originally projected sales as high as 6.5 million for the year, but the system has so far done poorly, particularly in Europe and Japan.

Shares fell as low as US$50.07 after the report. They lost US$0.89 to close at US$51.11 in regular trading.

Although the company continued to see no reason for optimism during the second half of 2002, Connors said that he still believed that "mid-single-digit" growth would be possible during the second half of its fiscal year.

During a conference call with analysts, Connors repeatedly emphasized what he referred to as the "long-term view" of the company's two leading executives, Bill Gates, the chairman, and Steven A. Ballmer, the chief executive.

But he acknowledged that if the economy fails to rebound next year, Microsoft would be unlikely to continue to defy gravity.

"If there were a further contraction it would certainly hit us as well," he said.
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