Microsoft Thursday came in with revenues over a billion dollars short of Wall Street projections, fooling punters who had run the stock up and perhaps explaining why it RTM'd Windows 7 24 hours before - to cushion the blow even if 7 won't be out until October 22 and even if Microsoft doesn't expect it to spark a recovery in PC sales.

Revenues for the June quarter, the company's fiscal fourth quarter, totaled $13.1 billion, a 17% year-over-year decline. Analysts figured they'd be $14.3 billion.

The company earned $3.05 billion net, down 29%, or 34 cents a share, 38 cents excluding one-time items, two cents more than projections.

Operating income amounted to $3.99 billion, down 30%.

In a statement CFO Chris Liddell said, "Our business continued to be negatively impacted by weakness in the global PC and server markets. In light of that environment, it was an excellent achievement to deliver over $750 million of operational savings compared to the prior year quarter."

During the conference call he said that he expects the next 12 months to be rough, not worse, just more of the same, with the exact timing of the recovery "uncertain." Otherwise he called a bottom.

He expects Asia and emerging markets to come back first, followed by North America, Western Europe and Japan.

Meanwhile, the Wall Street Journal is saying that Yahoo's board is to meet, perhaps late Thursday, to discuss the reported deal with Microsoft. Such a deal could be a mixed blessing.

All of Microsoft's businesses were implicated in the shortfall.

Client revenues were down 29% to $3.1 billion against projections of $3.3 billion with earnings off 33% to $2.2 billion, a situation Microsoft blamed on weak corporate sales, the shift to netbooks and the OEM mix. OEM revenue dropped $1.1 billion or 31%, in part because vendors had inventory, while OEM license units declined 10%.

Microsoft figures total worldwide PC shipments from all sources declined approximately 5% to 7%, driven by decreased demand in emerging and developed markets. It did see the first sequential growth since September but it also continued to see inventory contractions.

Revenues from the business unit where Office lives were down 13% to $4.6 billion with a $2.8 billion profit. Liddell doesn't see Office 2010 mattering much until 2011.

Server and tools revenue was short 5.7% to $3.5 billion earning $1.3 billion, down 1%, strong considering the x86 server sales were calculated to be off 24%. Liddell said there was no pent-up demand yet. Maybe next year.

Online revenues fell 13% to $731 million losing $732 million and entertainment and devices dropped 25%.

Microsoft's annuity business was described as both flat and up. Renewals remain the usual two-thirds to three-quarters but licensees haven't been increasing seats or spend. The dollar value is "sorta flat."

Going forward of course there will be more competition.

Microsoft is also going to be investing in the cloud infrastructure and pricey product launches. It means to keep a tight rein on other costs.

The results included deferred revenues of $276 million from the Windows 7 Upgrade Option program announced June 25, which cuts two cents off of earnings. Another two cents was lost to $193 million in legal bills, $108 million in impaired investments and $40 million in severance.

For the full fiscal year, Microsoft earned $14.57 billion, down 18%, on revenues of $58.44 billion, down 3%, and had an operating income of $20.36 billion, down 9%.

It didn't offer a revenue forecast but by way of guidance offered that it thought total operating expenses for the 2010 fiscal year would be $26.6 billion-$26.9 billion compared to $25.9 billion excluding cost of revenue.