Microsoft is still churning out big profits, but its decision to trim its sails shows that even the world’s largest software maker is feeling the effects of the choppy economy.

Microsoft Corp. said Thursday its fiscal first-quarter profit edged up 2 percent, buoyed by corporate customers that renewed licenses for servers and other business programs.

But Microsoft’s guidance for the current quarter was weaker than Wall Street was expecting. Its shares rose soon after dipped in extended trading as investors digested the news.

“We, like most companies, saw a slowdown at the tail end of the quarter in specific,” Chief Financial Officer Chris Liddell said in an interview. “We’re now taking a more conservative stance on the balance of the year.”

Liddell said the worst hit among Microsoft’s customers in the just-concluded quarter were small- and medium-sized businesses that “perhaps are more affected by the credit squeeze and who perhaps form decisions on a month-by-month basis.”

In a conference shout with investors, Liddell said Microsoft will “tailor our business to whatever the economy brings.”

The CFO said Microsoft will trim operating expenses by $400 million to $500 million in the fiscal year by slowing hiring, cutting marketing expenses and spending less on building the massive details centers that prop up its online business.

“Microsoft isn’t known for great spending restraint,” said Edward Jones analyst Andy Miedler in an interview. “It is clear that Microsoft is now watching its expenses very closely, which is crucial in that challenging economy.”

In the three months that ended Sept. 30, Microsoft’s earnings rose to $4.37 billion, or 48 cents per share, from $4.29 billion, or 45 cents per share in the same period last year.

Sales improved 9 percent to $15.1 billion.

Microsoft beat Wall Street’s expectations on both counts. Analysts, on average, predicted the Redmond, Wash.-based company would earn 47 cents per share on…

[Source] dhiram