Microsoft is feeling a bit more optimistic about the forthcoming fiscal year, although it still has to deal with some serious financial drains in the form of its online efforts and XBox 360 console.

For the fiscal year ended June 30, 2006, the company saw revenue of $44.28 billion, an 11 percent increase over the prior year and net income of $12.60 billion, which included $0.08 per share of certain legal charges.

With its stock at a long-time low, Microsoft announced plans to buy back $20 billion in shares, to be completed on August 17, 2006, with an option to purchase an additional $20 billion before June 30, 2011. The company has already completed a $30 billion stock repurchase program.

Sales of Windows XP rose 13 percent in the fourth quarter and overall 12 percent for the fiscal year, led mostly by OEM revenue. Sales in the Information Worker category, which includes Office, were also up for the quarter and the year, six percent and five percent respectively. Both Office and Windows sales had dipped in the previous quarter on anticipation of Vista and Office 2007.

An interesting sign of where things are going is the 19 percent pop in unearned income. That's income from volume license sales of forthcoming products. Client sales, or sales of Windows, rose a measly six percent between Q4'05 and Q4'06, but information worker sales, that of Office, jumped 28 percent.

Office 2007 has been delayed slightly, but the word on beta two of Office has been generally positive, more so than the latest beta of Vista.

"They practically have a Federal Reserve mint up there in Redmond printing money, and the unearned revenue is an absolutely phenomenal sign," said Joe Wilcox, senior analyst with JupiterKagen. "The beta and confidence in Office 2007 probably did contribute to the growth in licensing sales."

Microsoft chief financial officer Chris Liddell said in a conference call that a further delay of Vista, which has had more than its share of problems, would have "a relatively modest impact" on revenue, around $200 to $400 million. "Obviously that's revenue we'd like to see but it's not significant," he said.

Server and Tools revenue continues to soar, up 18 percent for the quarter and 15 percent for the year, with significant growth in operating income. Not so good are the online and entertainment segments. MSN revenue dropped 28 percent for the fiscal year and lost 600,000 subscribers during the year. Microsoft doesn't expect MSN to post a profit in FY'07 either due to the heavy development costs it's had to incur.

For fiscal '07, Microsoft projects sales to be in the range of $49.7 billion to $50.7 billion, the same projection it made last quarter. Operating income is expected to be in the range of $18.9 billion to $19.4 billion and diluted earnings per share are expected to be in the range of $1.43 to $1.47.

"2007 is shaping up well, we're looking to generate another year of double-digit revenue and earnings per share income," said Liddell.