Sid Parakh, McAdams Wright Ragen:

"While core businesses appear to be cruising along well, we are concerned about deteriorating performance of the Online business, despite the pricey $6 billion acquisition of aQuantive and continued significant investments being made in the division. While aQuantive has been in the fold for just over three quarters, the sequential decline in revenues in recent quarters hints at execution issues within the Online business; especially considering the continuing rapid growth in the Online advertising market. Driven by its quest to capitalize on the large Online advertising market opportunity, Microsoft will likely have to continue investing in the business for several years to come. Our concern surrounds the probability of achieving a decent return on these investments; a probability we rate as low until at least in the mid-term.

"We also reiterate our belief that a Yahoo! acquisition (if it happens) will not just prove to be very expensive, but will also be challenging from an integration standpoint and will more than likely be a distraction to operations and employees at the company. Continuing conversations with Microsoft employees supports our prior communication of the near non-existence of support for the deal."

Parakh expects online revenue to grow slower than management's expectations. He lowered his price target for the stock from $40 to $35 and maintains a "buy" rating.

Sarah Friar, Goldman Sachs:

"Microsoft's commentary on the macro environment was cautious, but upbeat on their positioning, given diversification, product cycles, etc. Their online advertising business continues to struggle with monetization as well as competitively. This segment will continue to be a focus for Microsoft as it looks to increase spending in an attempt to gain positioning against chief rival Google. ...

"Revenue in the Client [Windows] segment came in at $4.4 billion up 14% year over year and ahead of our estimate of $4.2 billion. The biggest driver of Client revenues was the PC market that returned to growth rates similar to the first half of the fiscal year of about 12%-14%. ... We remain cautious on the Client business in the near term, as our CIO surveys indicate that enterprise upgrades of Vista are one of the first initiatives to be pushed out in a weaker macro environment."

David Hilal, FBR:

"While not perfect, given the weak economic backdrop, we thought the results and guidance were solid. From a revenue perspective, we were glad to see upside in the quarter, a bigger-than-expected jump in unearned revenue, and guidance for FY09 that exceeded previous guidance and consensus. The softness in the results came from a profitability standpoint. ... So, while the company is able to impressively drive sales (revenue was up 18% [year-over-year] in the quarter), the upside is not falling to the bottom line. The main reason for this is the company's efforts to increase investments, particularly in its online business. While this may limit margin expansion in the interim, we believe it is the right strategic move, and we believe the strength in the rest of the business (which represents 95% of revenues) can help drive overall performance despite these increased investments. Because earnings can be managed more than revenues, if we had to choose one, then we are glad to see the strength in revenues. We maintain our Outperform rating and $40.00 price target. We believe the shares represent an excellent entry point as they are currently at an historical low valuation of 12x our CY09 EPS estimate."

Here's my story on the earnings.

The next big date on Microsoft's financial calendar is Thursday, when the company hosts its annual Financial Analyst Meeting. We'll be there providing gavel-to-gavel coverage.