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April 30, 2011

MicroSoft Online Division is Bleeding

Microsoft just turned in strong earnings, but once again, there's a big ugly blotch on the report in the online division. Microsoft had a $726 million loss from online operations, the second biggest lost since March 2006.

Microsoft reported earnings for the March quarter (Q3 of its 2011 fiscal year)  and they were OK but not spectacular.Investors were expecting more of a blowout, and have sent the stock down about 1.5% after hours.

Revenue was $16.43 billion, slightly ahead of consensus estimates of $16.19 billion.
Windows sales were down about 4% -- in line with a PC unit sales drop of more than 3%. Some investors were expecting Microsoft to buck the PC sales trend like Intel did, but Intel's numbers didn't entirely reflect a decline in netbook sales. Microsoft says that netbooks are off 40% from last year.

Microsoft also said that expenses would be up 3% to 5% in its next fiscal year, which starts on July 1. That's probably because of a planned compensation increase that Microsoft explained to employees earlier this month. But that's a lot smaller increase than operating expenses at some competitors -- Google, for instance, announced opex expansion of 10% on its last earnings call.