Microsoft was active in the quarter adding to its server and tools lineup the much-anticipated Windows Server 2008 Hyper-V virtualization platform and the SQL Server 2008 database.

But Chris Liddell, chief financial officer for Microsoft, said the company did feel a spending drop off in the last few weeks of the quarter and that the trend continued into October.

Liddell said Microsoft would adjust downward its guidance for the second fiscal quarter of 2009. Microsoft had been predicting an uptick in the economy for the quarter.

Now, Liddell said, "we are assuming a mild recession and a relatively modest growth rate for IT based products."

He said the company's strong cash flow, high unearned revenue and plentiful cash on hand would "allow us to weather any economic recession in relatively better terms than most."