Ray Ozzie, Microsoft’s chief architect and lead technology strategist, has warned that the switch to cloud-based services will adversely impact the company’s profit margins.

"The margins on services are not like the margins on software, so [cloud computing] will increase our profit and it will increase our revenue, but you won’t have that margin," he told the Churchill Club, a Silicon Valley networking forum.

But he denied that cloud computing represents an even greater threat to Microsoft by precluding the need for an operating system. “We will always need an OS,” Ozzie said. "Every device needs an OS. The programming model on top’s of that OS is what’s changing."

Meanwhile, on the other side of the Pacific Ocean, Microsoft told the Computex conference in Taiwan that mobile Internet devices (MIDs) – an emerging form factor that lies somewhere between a netbook and a smartphone – will drive demand for its cloud computing services.