Microsoft profit dipped in its third quarter after being hit by a $1.42 billion (£716 million) European Commission fine.
Earnings per share for the three months to March 31st 2008 were $0.47 (£0.24), compared to $0.50 (£0.25) for the previous year. Microsoft said the fine reduced earnings by $0.15 (0.7p) per share.
Revenue increased slightly, from $14.398 billion (£7.26 billion) in 2007 to $14.454 billion (£7.29 billion) in 2008.
Entertainment revenues grew 68 per cent over the quarter, driven by demand for Xbox consoles, the software giant said.
Cumulative console sales surpassed 19 million during the quarter, up 74 per cent from a year ago.
"Our third-quarter results demonstrate the benefit of our diversified business model," said Chris Liddell, chief financial officer of Microsoft.
"Our broad span across geographies, product categories and customer segments is a tremendous asset and supports our outlook for double-digit revenue, operating income and earnings per share growth for this fiscal year and also for fiscal year 2009."
For the second quarter, Microsoft predicted revenue in the range of $15.5 billion (£7.81 billion) to $15.8 billion (£7.97 billion). Diluted earnings per share were forecasted to be in the range of $2.13 (£1.07) to $2.19 (£1.10).
Microsoft also said it was prepared to walk away from its Yahoo bid if a deal is not reached by this Saturday's deadline.
In a conference call to analysts, the company's chief financial officer Chris Liddell said: "Unfortunately, the transaction has been anything but speedy and has been characterized by what would appear to be unrealistic expectations of value."
Yahoo rejected the initial bid, saying that it undervalued the company. The internet company has been seeking alternative partners since the hostile takeover was launched, and recently signed an advertising agreement with Google.