On the eve of the Windows 8 launch and in the face of a challenging PC market, Microsoft Thursday reported essentially flat sales and reduced profitability for its fiscal first quarter.

But with the imminent Windows 8 release and other new products such as Office 2013 and Windows Phone 8 on the horizon, Microsoft sought to portray the company's prospects as bright.

"The launch of Windows 8 is the beginning of a new era at Microsoft," said CEO Steve Ballmer in a statement. "Investments we've made over a number of years are now coming together to create a future of exceptional devices and services, with tremendous opportunity for our customers, developers, and partners."

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Microsoft is scheduled to begin shipping Windows 8 on Oct. 26. The same day the company will also begin selling Surface, the vendor's branded tablet computer that runs Windows 8.

For the first fiscal 2013 quarter ended Sept. 30, Microsoft reported revenue of $16.0 billion, down 7.9 percent from $17.4 billion in the same quarter last year. Net income was $4.5 billion, down more than 22 percent from $5.7 billion one year earlier.

The results included the deferral of $1.36 billion of revenue due to Microsoft's Windows upgrade offer, Office upgrade offer and pre-sales of Windows 8 to OEMs. When that deferred revenue is factored back into the financial results, sales in the quarter were flat year-over-year.

Slowing economic conditions in Europe and OEM partners drawing down their inventories of Windows 7-based PCs had an impact on the financial results, said Microsoft CFO Peter Klein said in a conference call with investors.

"The PC market was challenged this quarter," Klein said. "We saw the overall PC market decline in advance of the launch of Windows 8," added Bill Koefoed, general manager of investor relations.

NEXT: Server And Tools Operation Reports Strongest Results

Microsoft executives on the earnings call touted the expected advances Windows 8 will provide, including its ability to connect with Microsoft cloud services such as SkyDrive and the recently unveiled Xbox Music service. And, he cited the launch of the Windows Store, which will also go live Oct. 26.

"Windows 8 opens up significant opportunities for partners, developers and customers," Microsoft's Koefoed said. Microsoft said Windows 8 pre-sales revenue is 40 percent higher than for Windows 7 in its comparative launch quarter.

The executives declined to provide sales estimates for the Surface tablet saying Microsoft is currently focused on debuting the product and ramping up production.

Earlier this week the Wall Street Journal, citing manufacturing sources in Asia, published a story saying Microsoft is producing between 3 million and 5 million Surface tablets this quarter. Also earlier this week Microsoft disclosed pricing for the tablet computers.

The Windows and Windows Live Division reported revenue of $3.2 billion, down from $4.9 billion one year earlier -- largely due to the deferred revenue. Operating income dropped to $1.6 billion from $3.3 billion one year before.

Microsoft's Server and Tools business showed the strongest results in the quarter. A $215 million increase in sales of such products as the SQL Server database pushed revenue to $4.6 billion, compared to $4.2 billion one year ago. Operating income rose to more than $1.7 billion from less than $1.6 billion last year.

The Microsoft Business Division reported revenue of $5.5 billion, down from $5.6 billion one year earlier largely due to deferred Office revenue. Sales of Exchange, SharePoint and Lync collectively grew in double digits, according to Microsoft, while sales of the company's Dynamics CRM applications were up more than 30 percent. The division's operating income was $3.6 billion, down slightly from $3.7 billion last year.

Revenue from Online Services operations grew to $697 million in the quarter from $641 million last year, while the operating loss narrowed to $364 million from last year's $514 million operating loss. The Entertainment and Devices Division recorded revenue of $1.9 billion, down a fraction from last year. But operating income dropped to $19 million from $340 million one year ago.

PUBLISHED OCT. 18, 2012