Microsoft's in some amount of pain that it blames on the recession and deteriorating spending and says it doesn't expect things to get better this quarter, maybe longer, maybe into the next calendar year, a forecast it's made before.

Its revenues in the March quarter came up short at $13.65 billion, down 6% year-over-year, against expectations for $14 billion.

Think back. Has growth ever failed Microsoft before? The answer is no. This is its first year-over-year revenue decline ever.

CFO Chris Liddell says he saw no improvement at the end of March compared to the beginning, no reason to call a bottom. It just "stopped getting worse," he said, and he'd like to think of it not getting worse again.

Earnings worked out to $2.98 billion, 33 cents a share, down 32%.

Last year the company did $14.45 billion in its fiscal third quarter and earned 45 cents.

Despite missing expectations last quarter revenues are still slightly ahead of last year for the nine months: $45.3 billion versus $44.5 billion.

The company said that revenues in its Client, Business Division and Server & Tools units were "negatively impacted by weakness in the global PC and server markets."

Some people might blame Microsoft's leadership, the unholy trinity of Balmer, Mundie and Ozzie and say they are wrecking the company.

Revenue from enterprise customers, Microsoft said, remained stable during the quarter.

Microsoft figures PC shipments are down 7%-9%; 15%-17% sans netbooks. It thinks netbooks are 10% of shipment.

Liddell saw little difference between the US and Western European. They're equally as bad. But Japan and the emerging markets like Russia and Brazil are in worse shape.

Channel inventories everywhere are depressed and continuing to decline.

Microsoft's fiscal Q3 results included $290 million in severance charges related to its plan to cut 5,000 jobs, its first mass layoffs, and a charge of $420 million from impaired investments. Together they cut six cents off EPS. Excluding those items Microsoft met Wall Street's earnings expectations thanks to cutting costs, including sales and marketing, by 9% to $3 billion.

For its next sortie into cost-cutting it's going to abandon merit pay raises for its people in the next fiscal year.

The company's fiscal Q3 operating income was $4.44 billion, up 3%. Its operating margin was up to 32.5% from 29.7% year-over-year.

In the fiscal third quarter, the Windows desktop came in with $3.4 billion in revenue versus $4 billion last year, down 16%, Server & Tools was up a shade at $3.47 billion versus $3.24 last year, the Business Division was down 5% to $4.5 billion, Online Services was a shambles at $721 million versus $843 million last year, down 14%, Entertainment & Devices was down a tad at $1.56 billion versus $1.59 billion.

Microsoft blames its Online performance on display advertising drying up and explains why it wants to cut a deal with Yahoo so bad.

Operating income was off on the client to $2.5 billion versus $3.1 billion last year, down 19%; Server & Tools cleared $1.34 billion, up from $1.08 billion; Online losses more than doubled to $575 million and now stand at $1.521 billion so far this year; the Business Division made $2.87 billion, down 8% from last year's $3.12 billion; and Entertainment & Devices lost $31 million when last year it made $106 million.

Still Microsoft generated $5.5 billion in cash in the quarter.

The only guidance it was willing to venture was for operating expenses for the rest of the fiscal year being between $26.7 billion and $26.9 billion, down from $27.4 billion.

Shares were up in after-hours trading.