Microsoft posted strong quarterly sales and earnings gains Thursday, but investors, annoyed over the delay in the release of its upcoming operating system, failed to reward the stock.

The world’s largest software maker said net income for the first quarter was $3.48 billion, or $0.35 per share, compared to $3.14 billion, or $0.29 per share, during the same period a year earlier. Revenues rose 11 percent from the same period the year earlier to $10.81 billion

“The solid revenue results for the quarter were at the top end of our expectations and represent a very good start to the fiscal year,” said Chris Liddell, chief financial officer at Microsoft in a statement.

However, Wall Street didn’t see it that way. Shares of Microsoft were down $0.13 or nearly 0.5 percent to $28.25. Shares had closed at $28.35 on Thursday.

Microsoft said first quarter revenue grew to $10.81 billion for the period ended September 30, 2006, an 11 percent increase over the same quarter of the prior year. Analysts were expecting $10.74 billion.

Much of the growth came from the company’s Server & Tools division, where revenue increased 17 percent over the comparable quarter in the previous year. Microsoft offers products like SQL Server 2005, Windows Server, and Visual Studio2005 as part of its servers and tools portfolio. SQL Server, in particular, has been a blockbuster product for Microsoft for nearly a year now and in the first quarter it saw revenue grow more than 30 percent.

The entertainment and devices division of Microsoft, which is responsible for the company’s gaming business showed revenue growth of 70 percent over the prior year. Much of this growth came as a result of the demand for the Xbox 360 consoles, software, peripherals, and Xbox Live, said Microsoft. Xbox 360 has sold 6 million consoles worldwide to date and Xbox Live, the online gaming community for Xbox, passed the four million member mark during the quarter.

Microsoft is also coming much closer to delivering its highly anticipated Windows Vista and Office 2007 systems. During the quarter, the first release candidate for Windows Vista was made available to nearly 5 million customers worldwide, said Microsoft, and the beta 2 version of the 2007 Microsoft Office system was in use by over 3 million customers.

Contact the writer:PGanapati@RedHerring.com

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