Seattle Times business reporter Isaac Arnsdorf filed this dispatch on the sentencing today of Carolyn M. Gudmundson:

Carolyn M. Gudmundson, the former Microsoft employee who pleaded guilty in January to embezzling about $1 million, was sentenced in federal court today to 22 months in prison.

Did anyone hear a cheer go up from RedWest just now? Microsoft's Internet search-market share had its first up-tick this year, according to just-released data from comScore.

The company's Live Search engine gained almost a percentage point of U.S. market share from May to June, though it still trails far behind Google.

Microsoft's stock has not recovered from the tumble it took in after-hours trading Thursday. At 10:15 this morning, shares were down $2.06, 7.5 percent lower than the $27.52 closing price Thursday before the company announced earnings that missed Wall Street forecasts by a penny per share, and lowered its fiscal 2009 profit forecast. Here's what analysts had to say about the results in notes to investors this morning:

NPD Group just released data confirming what Nintendo of America President Reggie Fils-Aime predicted in February. His company's Wii console sold 666,700 units in the U.S. in June, bringing its total install base to 10.9 million, taking the lead from Microsoft's Xbox 360.

From the company's just-released fiscal fourth-quarter earnings announcement: Revenue was $15.84 billion for the quarter ended June 30, 2008, up 18 percent; operating income and diluted earnings per share were $5.68 billion and 46 cents. The average estimate of Wall Street analysts was for earnings of 47 cents a share.

Update, 1:31 p.m.: Microsoft is also tumbling in the after-hours market on the earnings miss. Its shares finished the regular session at $27.52, but were trading around $25.95, down 6 percent, in the after-hours market.

Update, 1:43 p.m.: Microsoft lowered its income and earnings outlook for the current fiscal year, which began July 1. Now the company expects full-year operating income of between $26.3 billion to $26.9 billion compared with a range of $26.7 billion to $27.4 billion given April 24.

Earnings per share, management says, will come in between $2.12 to $2.18 for the full year, down a penny from April 24 update of $2.13 to $2.19.

CFO Chris Liddell will surely offer an explanation for the move, which isn't entirely surprising given the tighter IT spending environment. Still, this is the first sign that Microsoft's business has been impacted.

Update, 2:23 p.m.: After speaking just now with Colleen Healy, Microsoft's investor relations head, it turns out the reduced guidance is not the result of an expected tightening IT budget. Microsoft instead is upping its spending on the Online Services Business, which just turned in a $1.2 billion operating loss for the fiscal year, more than twice the loss of the prior year.

Since the April update, "We have made a conscious decision to increase our spending, in particular to invest in our Online Services Business," Healy said.

Specifically, the company wants to drive increased awareness and search traffic to its Live Search engine; continue building its advertising platform; and enhance its MSN portal, Healy said. In total, that will come in at about $500 million in operating expense increases.

Revenue growth forecasts for 2009 are actually up slightly, indicating the company is not expecting any softening in sales. "We're feeling good about fiscal year 09 and that does give us the confidence to invest in the business," she said.

Also, in the current fiscal fourth quarter, Microsoft saw operating expenses increase by $500 million, in part because revenue was higher than expected because of increased consulting business and Xbox 360 sales, which have higher costs associated.

The other half of that op ex increase -- about $250 million -- "was to do things like get tenacious on taking advantage of the economic climate out there to attract top talent," Healy said.

Update, 2:37 p.m.: The Entertainment and Devices Division met its goal of profitability -- operating income of $426 million for the full fiscal year, a first. But the company stumbled to the finish with a $188 million loss in the current quarter. Healy chalked up the loss to investments in the division.

"We did continue to invest in things like our mobility efforts and other areas in that business, which, we think, is going to fuel growth in the future," she said. "Our goal was sustained profitability on a yearly basis, and that doesn't mean that quarter-by-quarter, it's going to be in the black. It means that our goal is that on a yearly basis, we expect to be in the black, which continues for fiscal year 09."

The company noted strong Xbox 360 sales in the quarter, and revenue growth of 36.6 percent. Asked if the company loses money on each console, Healy said the company's goal is for the console to break-even in the long run, excluding the $1.1 billion charge the company took in the fourth quarter last year to expand warranty coverage on its overheating Xbox 360s.

Microsoft's top Internet rival, Google, saw a slight, sequential decline in profit in the second quarter, posting non-GAAP net income of $1.47 billion, compared with $1.54 billion in the first quarter of 2008. Non-GAAP earnings per share were $4.63, missing the average analyst estimate of $4.74 a share. The company's stock was tumbling in the after-hours market.

Next up Microsoft.

Microsoft reports earnings for the fiscal 2008 fourth quarter and full year Thursday. It will also sharpen its forecast for the current quarter and fiscal year against a backdrop of grim developments in the broader economy.

At the same time, the ongoing pursuit of Yahoo could be coming to a climax in two weeks at Yahoo's shareholder meeting. But the drama that has unfolded in the last five and a half months has put an anchor on Microsoft's stock and called the company's online strategy into question.

So what are analysts expecting and watching for Thursday?

LOS ANGELES -- I got an email yesterday from Bill Dugan of Torpex Games, a collection of video game industry vets who are bootstrapping it in the growing downloadable games market. He had good news: Their game, Schizoid, shipped last week.

As I head home from the E3 Media and Business Summit, Dugan's success was a reminder that the games industry is not all about the blockbuster titles and multi-million dollar marketing extravaganzas like this one.