Microsoft is working with manufacturers to produce a line of small touch-screen devices powered by Windows, apparently intended to compete with 7-inch tablets like the iPad Mini and Amazon Kindle Fire.
Peter Klein, Microsoft's chief financial officer, told investors and analysts on a conference call Thursday that the new devices will be available in coming months at competitive prices.
Microsoft Corp. is struggling to extend its software into smartphones and tablets as consumers are turning away from PCs, the foundation of its empire. Over the winter, it launched two larger tablets under the Surface brand. And in October, the company took a large stake in Barnes & Noble's digital unit, which sells a line of entertainment-oriented 7-inch tablets under the Nook brand.
Microsoft reported financial results for its latest quarter Thursday, showing a deep -but largely expected- impact from the slowdown in global PC sales. Investors seemed to be expecting worse after some recent dismal reports on the PC slump.
Outside the Windows division, Microsoft posted solid results from its Office, software tools and Xbox divisions.
Even if the company has a lot of challenges, "there's a lot of good things going on at Microsoft," said Colin Gillis, an analyst at BGC Partners.
The Redmond, Wash.-based company's shares rose 81 cents, or 2.8 percent, to $29.60 in extended trading, after the release of the report.
The software company's net income was $6.1 billion, or 72 cents per share, for the fiscal third quarter, which ended in March. That was up 18 percent from $5.1 billion, or 60 cents per share, a year ago, and beat the forecast of analysts polled by FactSet, at 68 cents. However, analysts have trimmed their forecasts quickly in the last few weeks - a month ago, they were expecting Microsoft to post 77 cents in earnings.
Last week, research firm IDC said PC sales fell 14 percent in the quarter, a record. It blamed, in part, Microsoft's new Windows 8, which makes a clean break with the look and workings of old Windows in order to work better with touch screens. Buyers seem daunted by the new interface, IDC said.
Klein said that an updated version of Windows 8 to be released later this year and code-named "Blue," will be in part a response to "customer feedback." Many complaints have focused on the lack of a Start button for those who prefer the older "Desktop" environment, which is hidden behind the new tile-based interface. Klein didn't offer details.
Revenue was $20.5 billion, up 18 percent from a year ago and matching analyst forecasts.
Both earnings and revenue were skewed by software accounting practices. Microsoft offered a $15 upgrade to Windows 8 for Windows 7 PCs purchased June 2 or later. It wasn't able to start recognizing the full value of the software licenses until these offers were redeemed or expired. In the latest quarter, Microsoft was able to recognize $1.1 billion of such deferred Windows revenue, greatly boosting the overall figure.
Stripping out the deferred revenue, overall revenue rose 8 percent, and revenue in the Windows division was flat with a year ago. Even if consumers aren't buying many Windows 8 PCs, businesses are still upgrading from Windows XP to Windows 7 at a rapid clip.
Stripping out deferred revenue and the effect of a $733 million fine levied by the European Commission, Microsoft earned 65 cents per share, up 8 percent from a year ago.
At the company's largest division, Business, revenue rose 8 percent from a year ago to $6.3 billion. The increase was 5 percent adjusting for upgrade offers for the new Office suite.
Microsoft also said CFO Klein is leaving at the end of the fiscal year, in June. He has been in his current role for four years and at the company for 11 years. The company plans to name a new CFO from its finance team in the next few weeks.