The company, the world's biggest software maker, said sales for the three months to late June came in at just over $8bn (�4.8bn), up 11% on the same period last year, and comfortably ahead of the $7.8bn forecast by analysts.

The increase reflected higher revenues from a new subscription-style pricing plan for corporate customers, and strong server software sales.

Microsoft chief financial officer John Connors said demand from consumers and businesses alike had been "solid."

Profits including one-off costs came in at $1.92bn, up by more than a quarter compared with the same period last year.

But when one-off costs were stripped out, the company made a profit of 23 cents a share, missing analysts forecasts by just one cent.

Shares bounce

Investors were unfazed, marking Microsoft shares up 1.3% in after-hours trade to $27.06.

"Come on, a penny here, a penny there, the company is still rock solid and generates tons of cash," said Sameer Bhasin, an analyst at New York-based Okumus Capital.

Microsoft also raised its sales forecast for the year, saying it now expected revenues of between $34.2bn and $34.9bn, up from its previous estimate of $33.1bn - $33.8bn.

But Microsoft dashed hopes that it would increase its annual payment to shareholders, saying it wanted to settle outstanding legal disputes first.

The company is fighting a lawsuit brought by arch-rival Sun Microsystems in the US, and is also being investigated by European Union competition watchdogs.

There had been speculation that the company might use part of its estimated $50bn cashpile to reward its shareholders.

In common with most fast-growing technology firms, Microsoft has traditionally preferred to spend money on new product development rather than on dividend increases.

Options accounting

Microsoft's decision earlier this month to phase out employee stock options are expected to force the firm's profits lower from now on.

The company is planning to replace employee stock options with straightforward stock allocations.

Stock allocations, unlike stock options, are treated as an expense, and have to be deducted from profits.

Stock options, which give staff the right to buy shares at a pre-determined price, are intended to tie employee remuneration more closely to the company's performance.

They were a favoured means of rewarding employees during the boom years of the 1990s, especially in the fast-growing technology sector.

But plummeting stock markets have in many cases forced share prices below the pre-determined purchase price, making them worthless to employees.