Microsoft Winces at Recession's Blow

Microsoft suffers a third-quarter revenue slump amid weakening demand.
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Updated from 4:59 p.m. EDT

As

expected

, the tech spending slowdown is taking its toll on

Microsoft

(MSFT) - Get Report

, 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.

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

Google

(GOOG) - Get Report

,

IBM

(IBM) - Get Report

, and

Oracle

(ORCL) - Get Report

, 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."