San Francisco - Microsoft reported a drop in quarterly revenues Thursday for the first time in the 23 years since it went public. But investors still gave the world largest software company their approval, sending Microsoft shares higher in after-market trading as its aggressive cost cutting measures preserved profitability.

The Seattle-based company said its revenues dropped 6 per cent to 13.7 billion dollars, compared to the year-ago quarter. Profits of 3 billion dollars represented a 32-per-cent drop from the 4.4 billion dollars it earned in the same period last year.

The company has been hit hard by a drop in consumer spending, with people delaying or canceling purchases of new computers. Sales of Microsoft's Windows operating system were down for only the second time in history, but Microsoft said it saw signs that the worst may be over.

"While market conditions remained weak during the quarter, I was pleased with the organization's ability to offset revenue pressures with the swift implementation of cost-savings initiatives," Microsoft chief financial officer Chris Liddell said in a statement Thursday.

"We expect the weakness to continue through at least the next quarter."