Microsoft's net income and earnings fell by 17 per cent for its second financial quarter, due largely to the expense of maintaining the firm's employee stock option programme.
Net income for the quarter ending 31 December 2003 was $1.55bn, compared with $1.87bn for the same period last year.
The software giant said that the current results include stock-based compensation expenses of $2.17bn, of which $1.48bn after tax is related to the completion of the employee Stock Option Transfer Program.
The cost of the staff share package weighed in at $709m after tax for the same quarter a year ago.
In addition Microsoft boasted record revenue of $10.15bn for the quarter, a 19 per cent increase over the previous year. Operating income was $1.48bn, compared to $2.23bn last year.
"Consumer and corporate demand for PCs continued to exceed our expectations and resulted in solid double-digit revenue growth for Windows XP and Office products," said John Connors, chief financial officer at Microsoft, in a statement.
"In the second quarter, the overall corporate IT market also began to show signs of a recovery, with increased demand for both desktop and server products."
Microsoft's key 'information worker' revenue grew 27 per cent year on year, which the company attributed to strong adoption of Office 2003 by consumers and small businesses.
The firm added that its home and entertainment division had a "solid" quarter driven by sales of Xbox games and consoles.
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