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Excerpt from the transcript of Microsoft's (MSFT) conference call:

Colleen Healy - General Manager, Investor Relations

Revenue for our Online Service business was down 4% to $539 million, with 5% advertising growth and a 30% decline in access revenue. Increased advertising revenue was driven by growth in display advertising, offset by lower search revenues. With respect to search, although our search queries grew, our search pricing was below the prior-year levels as a result of the transition to our new adCenter platform, which began in earnest during the December quarter. We experienced sequential growth in revenue per search as we increased the number of advertisers on our platform. During the quarter we also released a number of new or updated Internet services, including Live.com, Live Search, Live Local Search and Live Spaces...

Chris Liddell - SVP and CFO

...revenue guidance in our five business units is as follows:

...We forecast revenue in the Online Services business to grow between 7% and 11% for the year and to be up 3% to 5% in quarter two. The full-year growth number implies significant year-over-year growth in the second half, based upon growth in both search and display advertising revenues. While we continue to make investments in various aspects of the business, we did make progress on a number of fronts in the quarter. For example, we rolled out the Live Search, which now powers searches on both MSN.com and Live.com, moved our Live Local Search out of beta and into final availability in both the U.S. and the UK, continued to grow and broaden our social networking presence with spaces and the recent beta rollout of Soapbox, and we're making good progress getting advertisers on adCenter, as well as looking at opportunities to extend our reach through partnerships...

And later in the Q&A:

Jason Maynard - Credit Suisse

Just a question about use of cash. There's a lot of acquisitions going on at fairly high prices in the online property space. I'm just curious, what are your parameters around contemplating a transaction like that, and how you think about some of those larger deals? And also, just maybe as the flip-side of this is what are your plans for CapEx for this fiscal year, and have they changed at all since last quarter?

Chris Liddell

We are very rigorous on the acquisition side. We bought 23 companies last year, and as Colleen mentioned in her statement, we bought four in the first quarter. But we have an incredibly disciplined process for acquisitions that go through a number of stages, and clearly they need to be ROI and economic value-positive. So, you are correct that we are seeing some price inflation in some of the acquisitions that we're talking about. For every one we do, we probably turn down one or two. So, we don't buy everything that we look at and we are selective on not only what we buy, but how much we pay for it.

In terms of our attitude going forward on acquisitions, I think we've said a number of times at financial analyst meetings and outside of that, we do see acquisitions playing a role in our growth. So, I would certainly expect us to still buy companies. In the first quarter it tended to be more in the Server and Tools area. Going forward it could well be in the online services area, in particularly with the speed of how that market is developing and some of the opportunities we're being shown, obviously that's a possibility. But we are not going to buy anything that we don't think creates economic value.

In terms of CapEx, it's very much in line with what we guided you to in July. So, we're looking at just over $2 billion for the year. I believe we spent $400 million in the first quarter. In terms of online spend on CapEx, which is one of the areas people are primarily interested in, we're looking at around $700 million for the full year, and we spent about $150 million in the first quarter.

Excerpted from the full transcript of the Microsoft conference call.

Source: Microsoft Discusses Search and Online Acquisitions