Trouble Ahead for Both

Analysts noted that Mr. Schmidt had made reference, for the first time, to the more challenging economic environment in his prominent statement on Googles earnings release. They also observed that Google had taken the unusual step of having Hal R. Varian, its chief economist, on the earnings call with investors and analysts.

Google said:

Were very well positioned in a slowdown especially if it gets worse, said CEO Eric Schmidt, who added there would be a flight to quality if the economy tanked.

Some of the softness in Googles advertising revenue, moreover, was self-inflicted. Jonathan Rosenberg, Googles senior vice president for product management, said that Google had chosen to reduce is advertising coverage " the percentage of Web pages on which it displays advertising " to an all-time low.

There is some evidence we have been a little more aggressive in decreasing coverage than we should have been, Mr. Brin said.

Next Microsoft.

• Operating income of $5.68 billion
• Revenue of $15.84 billion
• Q4 earnings of $0.46 with Wall Street expecting $0.47

The Analysts said:

"The core business did well, but we were looking for a little bit more out of the Internet advertising business, and expenses were too high," said Andy Miedler, an Edward Jones analyst.

Microsoft said:

Chief Financial Officer Chris Liddell said during a conference call with analysts that heavy spending on the division " from data centers to employees needed to sell online ads " is likely to continue. "The Yahoo transaction would have accelerated our progress," Liddell said, "I cant promise you youre going to see massive turnaround in the short term."

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