The unit responsible for the Xbox 360 lost money in the quarter, but ended the full fiscal year in the black, a milestone analysts have been watching for two years.

Microsoft’s online division, which makes money primarily from selling advertising on the Web, lost US$488 million, more than double its year-ago loss. Its ongoing woes are a major reason for Microsoft’s on-again, off-again pursuit of Yahoo Inc.

“This is the area where we’re seeing direct impact from the economic slowdown,” Liddell said. He said the unit’s revenue rose 24 percent, which he described as “still strong, but it wasn’t as strong as we had hoped for.”

During a conference call, Liddell told analysts the company would invest hundreds of millions of dollars more than expected in the online business next year. He also forecast revenue growth for the unit would slow to between 7 percent and 11 percent in the quarter, and 18 to 20 percent for the full year, citing the tough economy.

“At pace they’re investing, they should be able to grow faster,” said Walter Pritchard, an analyst for Cowen and Co. “You could go back three years ago and say, these guys are still in the same situation. (They have a) quasi-strategy in online that isn’t really clearly defined. They keep throwing money at it, and they’re not getting any results.”

For the full fiscal year, Microsoft’s earnings rose 26 percent to US$17.7 billion, or US$1.87 per share, from US$14.1 billion, or US$1.42 per share in fiscal 2007.

Sales for the year surged 18 percent to US$60.4 billion.

Microsoft’s full-year guidance for fiscal 2009 was much the same as three months ago. The company forecast a profit of US$2.12 to US$2.18 per share on US$67.3 billion to US$68.1 billion in revenue.

Wall Street currently expects the company to earn a more modest US$1.88 per share on US$60.2 billion in sales.

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