(RTTNews) -  Software giant Microsoft Corp. (MSFT: News ) on Friday reported a decline in first-quarter profit, as the company deferred a portion of its revenue related to the Windows 7 Upgrade Option program. On an adjusted basis, earnings rose from last year and topped Wall Street view. The stock is trading higher by over 7%.

The Redmond, Washington-based company reported first-quarter net income of $3.574 billion or $0.40 per share, down from $4.373 billion or $0.48 per share reported in the same quarter last year.

According to the company, the results reflect the deferral of $1.47 billion of revenue, an impact of $0.12 of earnings per share, relating to the Windows 7 Upgrade Option program and sales of Windows 7 to OEMs and retailers before general availability. Adding back the deferred revenue, adjusted earnings per share totaled $0.52 per share, an increase of 8% over the same period of the prior year.

On average, 30 analysts polled by Thomson Reuters expected the company to report earnings of $0.32 per share for the quarter. Analysts' estimates typically exclude special items.

Revenues for the quarter were $12.92 billion, down from $15.06 billion in the prior year quarter. Adding back the deferred revenue, first-quarter revenue totaled $14.39 billion, a 4% year-over-year decline. Analysts had a consensus revenue estimate of $12.32 billion for the quarter.

The software giant started the Windows 7 Upgrade Option program in June, which allows customers who purchase PCs from participating computer makers or retailers with certain versions of Windows Vista to receive an upgrade to the corresponding version of Windows 7 at minimal or no cost. In addition, purchasers of retail packaged Windows Vista from participating retailers in participating markets may qualify for a free or discounted upgrade to the equivalent Windows 7 product. About 90% of the PCs around the world run on the company's windows operating system.
Operating income declined to $4.482 billion from $5.999 billion.

First-quarter revenues of Windows & Windows Live Division plunged to $2.620 billion from $4.278 billion in the prior year. The segment's operating income dropped to $1.463 billion from $3.059 billion.

Server and Tools generated $3.434 billion in the latest quarter, marginally higher than $3.417 billion generated last year. Operating income for the segment advanced to $1.283 billion from $1.044 billion in the prior year.

Microsoft Business Division had first-quarter revenues of $4.404 billion in 2009, lower than revenues of $4.954 billion reported last year. Operating income dropped to $2.863 billion from $3.185 billion.

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