In a quarterly report with the U.S. Securities and Exchange Commission (news - web sites), Microsoft said it posted operating income of $1.97 billion in the December-ended quarter in its Windows-centered business unit on revenue of $2.44 billion. That was down from income of $2.11 billion and revenue of $2.68 billion a year earlier.

Microsoft's Home and Entertainment segment, which includes the Xbox, games for personal computers and the company's TV products, posted an operating loss of $348 million in the quarter on revenue of $1.28 billion. A year earlier it had revenue of $833 million and a loss of $180 million.

Focus Enhancements Inc. (NasdaqSC:FCSE - news), which makes video chips for the Xbox, said it had been informed by Microsoft that the software giant's component requirements for the first half of 2003 had been reduced because Xbox holiday sales had been at the low end of estimates.

"As a result, Focus Enhancements has been told by Microsoft not to anticipate purchases of the FS454 chips for Xbox in the first half of 2003 and that we will know future FS454 chip requirements, if any, prior to the end of the second calendar quarter of this year," the company said