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Microsoft Sales Disappoint

Microsoft's profits nearly doubled during the third quarter ended March 31 on lower legal expenses and strong sales of server software and its Xbox video game, but revenue inched up just 5%--short of investors' expectations--as sales of Windows and Office grew only modestly.

The world's largest software company earned $2.6 billion for the quarter, compared with $1.3 billion during the comparable quarter one year ago. Revenue was $9.6 billion, up 4.9%, compared with analysts' expectation of $9.8 billion, according to a survey by Thomson Financial.

Lower legal expenses helped lift profits. Microsoft spent $768 million to cover legal claims, including a settlement with Gateway Inc. In the third quarter last year, the company spent $2.5 billion on legal charges.

But top-line growth last quarter was squeezed. Microsoft's largest products, Windows and Office, each generated more than $2 billion in profits during the quarter. Yet Windows revenue was up just 2.2%, and Office sales grew at about 2.5%. Server hardware sales also grew more slowly than projected.

Sales in Microsoft's home and entertainment division, which includes its Xbox console, and sales of servers and tools, including the SQL Server database and Exchange E-mail software, both grew nearly 12%.