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Microsoft Winces at Recession's Blow

Microsoft suffers a third-quarter revenue slump amid weakening demand.

Updated from 4:59 p.m. EDT



, the tech spending slowdown is taking its toll on


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, with the software giant registering its first ever year-over-year revenue decline.

After market close, Microsoft reported third-quarter revenue of $13.65 billion, a 6% decline on same period last year and well below Wall Street's estimate of $14.1 billion.

The Redmond, Wash.-based firm reported earnings of 33 cents a share on net income of $2.98 billion, down from 47 cents a share and $4.39 billion in the year-ago quarter. Microsoft's earnings, however, took a 6-cent hit from $290 million in severance charges and $420 million in impairment investments. Analysts surveyed by Thomson Reutersl had expected earnings of 39 cents a share.

Investors responded positively to Microsoft's results, and the company's shares rose 96 cents, or 5.07%, to $19.88 in extended trading.

"While market conditions remained weak during the quarter, I was pleased with the organization's ability to offset revenue pressures with the swift implementation of cost-savings initiatives," said Microsoft CEO Chris Liddell in a statement. "We expect the weakness to continue through at least the next quarter."

The company's third quarter sales took a hit from weakness in the global PC and server markets, although revenue from enterprise customers remained stable.

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It was not all doom and gloom, however, and Microsoft raised its full year operating expense guidance from $26.7 billion to $26.9 billion, including severance charges.

Like many tech companies, Microsoft has had to fight the economic downturn and announced plans to cut 5,000 jobs earlier this year.

Microsoft, which competes with


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, and


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, said that it is still on track launch its Windows 7 operating system during fiscal 2010. "Development milestones were achieved on other products including Microsoft Office 2010, Windows Server 2008 R2 and Windows Mobile," it said, in a statement.

In a conference call to discuss Microsoft's results, Liddell said there is little chance of a swift tech sector rebound. "We witnessed a deterioration in spending levels through the third quarter," he said. "In the fourth quarter, we expect the overall spending environment to remain difficult."