San Francisco (dpa) - Microsoft announced an 18-per-cent drop in quarterly profits Friday, but the software giant's results easily beat Wall Street estimates and sent the company's stock higher by 10 per cent in morning trading.

Coming a day after the well-received launch of its Windows 7 operating system Microsoft's solid earnings report bolstered the view of a wider tech recovery following positive results from the likes of Google, Yahoo and Intel.

Microsoft reported third-quarter earnings of 3.57 billion dollars down from 4.37 billion dollars in the year-earlier period as revenue declined 14 per cent to 12.92 billion dollars.

Analysts had expected a larger drop in both sales and profits due to the sluggish economic conditions and deferral of purchases due to the release of Windows 7.

"We are very pleased with our performance this quarter and particularly by the strong consumer demand for Windows," Microsoft Chief Financial Officer Chris Liddell said. "We also maintained our cost discipline, which allowed us to drive strong earnings performance despite continued tough overall economic conditions."