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In its fiscal third quarter earnings call Thursday, Microsoft met the Street's expectations but saw quarterly profit drop 11 percent from the year-ago quarter. However, the results were skewed by Microsoft's booking of $1.7 billion in deferred revenue from its Express Upgrade to Windows Vista and Microsoft Office Technology Guarantee programs as well as pre-shipments of Vista and Office 2007.

Microsoft's overall profit dipped to $4.39 billion, or 47 cents per share, compared to $4.93 billion, or 50 cents per share, in the same quarter last year. Thomson Financial analysts had been expecting profit of 44 cents per share.

Microsoft's revenue during the quarter came in at $14.45 billion, up slightly from the $14.39 billion it racked up during the same period last year. Sales were particularly weak in Microsoft's Client division, which is responsible for Windows, dropping 24 percent year-on-year from $5.27 billion to $4.02 billion.

But in a Q&A session after the call, Microsoft CFO Chris Liddell denied that Vista related issues dragged down the Client division's results, and instead chalked it up to changes in the geographical sales mix and a channel shift toward larger OEMs and away from local and regional system builders.

Liddell also beat the anti-piracy drum during the call, claiming that an increase of shipments of unlicensed PCs, particularly in Asia, was partially responsible for a 25 percent drop in OEM revenue during the third quarter. "Piracy is a tough matter, and we will need to continue investing in order to make progress," he said.

One ray of light was the performance of the Server & Tools division, in which sales were up 18 percent from the year-ago quarter, driven in part by client access license (CAL) revenue and sales of volume licensing contracts, according to Liddell.