It reported a net profit decline of 29% to $3.1bn (£1.9bn) compared to the same period last year, while revenue fell 17% to $13.1bn (£7.9bn).
The company however is benefiting from a major cost cutting stratgey. Chris Liddell chief financial officer says: “In light of the environment, it was an excellent achievement to deliver over $750m of operational savings compared with the prior year quarter.”
Microsoft rakes in the majority of its profits from its Windows operating system and business software such as Office. In a crucial new launch, it is due to roll out its new Windows 7 operating system in October.
However, it could soon be faced with stiff competition from Google which earlier this month announced plans to develop an operating system aimed at laptop users.
The internet company is planning to launch Google Chrome Operating System next year and will initially see it develop a number of netbooks for the market.
Meanwhile, Microsoft has topped the 2009/10 Superbrands survey, stealing the lead from Google which dropped down to third position.