NEW YORK (AdAge.com) -- For the first time in its history, Microsoft saw a year-over-year quarterly revenue drop -- and it predicts a "long and gradual" recovery. Quarterly revenue fell 6% in its fiscal third quarter to $13.65 billion from the year-earlier quarter. Profit also took a hit, down 32% to $2.98 billion and 33 cents per share.
"While we'd all like to think our recovery will be soon and painless, we unfortunately believe it will be slow and gradual," said Chief Financial Officer Chris Liddell. "We expect trading issues to remain difficult through the end of next quarter and potentially through the end of this calendar year."
The company's business PC and server businesses were hit particularly hard as companies pulled back on their IT investments, but the consumer PC story wasn't all bad, thanks in part, it said, to the rise of netbooks and a major Windows ad campaign it has been running.
Small notebooks, more often known as netbooks, represented 10% of all PC shipments in the quarter, leading to flat year-over-year unit sales in the consumer PC market. Part of that is likely because netbooks are significantly less expensive than any of rival Apple's notebooks, but Microsoft also credited its advertising efforts, which are handled by Crispin, Porter & Bogusky.
"On the marketing side we have seen measurable perception increase for Windows from our recent advertising campaigns," said Bill Koefoed, general manager-investor relations. "Specifically, our research shows that 10% increase in preference to Windows PCs since the campaign launched."
Other divisions had mixed results. Online advertising revenue was down 16%, largely due to weakness in display advertising rates, which were partially offset by growth in page views and search queries. Overall revenue at its online services business division, which includes MSN and search advertising, was down 14% to $721 million. The division recorded an operating loss of $575 million.
Mr. Liddell alluded to the new search engine Microsoft will launch this summer as one of a range of products the company would introduce across its divisions despite the economic environment.
"You will see in all of our major products a significant release in the next 12 months," he said. "Now that's going to be not a soft-demand environment but we think that's the right thing to do ... we'll be going into that growth pickup with a very good set of new products."
And how's this for bucking a recession: This quarter Microsoft sold 1.7 million Xbox consoles, almost 30% up over the same quarter last year. Fiscal year-to-date, Microsoft has sold 10 million Xboxes -- or 15% more than it sold in all of last year.