Microsoft reported its fiscal third quarter results with net income up 35% as revenue rose 6% to $14.5 billion from the year ago period.

However, losses in its online business group jumped 74% from $411m to $713m.

AP reported:

Microsoft has started making payments to Yahoo Inc. as part of a Web search deal that the two forged last year. This quarter, the payments amounted to $78 million. But Microsoft is not operating the technology behind Yahoo's search right away, so it isn't benefiting from the partnership yet.

MSFT shares fell 4% in after hours trading. This places it below Apple (AAPL) in market capitalization.

The results show that Microsoft's traditional cash cow, Windows operating systems and its Office software continue to be very profitable and dwarf the losses in its online and other business groups. Although Microsoft does face some challenges from online software applications, such as Google's services, they don't compete for its core customers who continue to spend large amounts on Microsoft software licenses.