After a week of gloomy news for the technology sector, Microsoft has delivered a much-needed shot of optimism with a hefty 9 per cent increase in sales.

Sales were up thanks mainly to server, Windows client and Microsoft Office businesses. But the online business did not do so well.

Microsoft, which recently launched a massive new advertising campaign to trumpet the Windows operating system, attributed part of the decline to higher marketing expenses.

The company also blamed some of that decrease on the rising popularity of netbooks - small, inexpensive laptops that generally do not run the pricier versions of Windows Vista.

Microsoft is tightening its belt and predicts a difficult downturn. It will trim operating expenses by $400 million to $500 million in the fiscal year by slowing hiring, cutting marketing expenses and spending less on building the massive data centers that prop up its online business.

But the company has got large cash reserves, even after it bought back $6 billion in stock. Cash, cash equivalents and short-term investments add up to nearly $21 billion. It is interesting to note that Yahoo!’s freefall stock price now gives it a market capitalisation of only $17.5 billion.

Microsoft repeated the other day that it has no plans to buy Jerry Yang’s troubled company but Microsoft’s difficulties with its online business might push it again towards an offer. The speculation starts here.

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