Microsoft Lost Nearly $500 Million On The Web Last Quarter

Overall, Microsoft’s quarterly net profits declined 11 percent to $4.17 billion for the fiscal period ended in December. Operating profits were down 8 percent to $5.94 billion.

If you drill down to the individual operating businesses, every business unit except for Servers and Tools suffered from lower operating profits. The Client division (Windows) took the biggest hit, with operating profits down $440 million to $2.95 billion. (Windows revenues were down 8 percent to $3.98 billion). But Microsoft’s Online Services business (which includes MSN, online advertising, and search) tied for the company’s second biggest loser along with Entertainment and Devices Division (Xbox, Zune)—both saw operating profit declines of $224 million in the quarter.

But at least the Xbox business turned a profit. Microsoft’s Web business nearly doubled its operating loss to $471 million. That loss was on flat revenues of $866 million. Not a good sign for the health of Web advertising.

Update: In the conference call, Microsoft stated that advertising revenues were up 7 percent in the quarter to $664 million and that search advertising grew even faster. But that was not enough to offset the increased expenses in the business.