PHILADELPHIA, PENNYSYLVANIA: Microsoft Corp has suffered declining revenues in the recession and sees continued challenges in coming months, the president of its business division said on Friday.

But Stephen Elop said the software giant will continue to invest aggressively, particularly in Internet-based applications, or so-called cloud computing.

"We are pretty pessimistic in the near-term, we see tough times in the months ahead," Elop said in an interview with Reuters.

"Microsoft revenue has been challenged but we will continue to invest very aggressively in the future of technology during this period," he said.

Elop rejected a suggestion that Microsoft is struggling to catch up with competitors like Google Inc and Amazon in terms of cloud-computing applications.

He argued that Microsoft's cloud-computing applications have been endorsed by major clients including Nokia and Coca-Cola, and that the company's Windows Azure operating system for online applications was endorsed by other developers at a conference in October 2008.

"We are absolutely leading at this point," he said.

Microsoft has developed browser versions of programs such as Word, Excel and PowerPoint within its Office product, which is in private testing, Elop said.

He declined to say when the online version of Office would be released to the public.

Elop acknowledged there had been "a lot of criticism" of the Windows Vista operating system but said Microsoft had made "very major architectural changes" in such areas as security and performance.

The improvements to Vista will also enhance the performance of the to-be-launched Windows 7 operation system that will succeed it, he said.

"We are cautiously optimistic about how Windows 7 will land," he said.