New York - Microsoft said profits took a hit from its newly acquired Nokia phone division but that revenues got a strong lift from cloud services.
The US tech giant's new chief executive Satya Nadella said the results suggested that Microsoft's shift to services amid declining personal computer sales was starting to pay off.
Net profit for the three months ending on 30 June dipped 7% from a year earlier to $4.6bn, below market expectations.
But revenues grew a strong 17.5%, lifted by the cloud services.
"We are galvanised around our core as a productivity and platform company for the mobile-first and cloud-first world, and we are driving growth with disciplined decisions, bold innovation, and focused execution," said Nadella.
"I'm proud that our aggressive move to the cloud is paying off - our commercial cloud revenue doubled again this year to a $4.4bn annual run rate."
The earnings came just days after Microsoft announced its biggest job cuts ever with Nadella calling for a new focus at the US tech giant while integrating the Nokia phone division acquired this year.
The company said it would slash 18 000 jobs from its global workforce over the next year, the majority from the Nokia handset unit.
The cuts represent about 14% of Microsoft's global payroll of some 127 000. The company will take a charge of between $1.1bn and $1.6bn for costs related to the layoffs.
In the latest earnings, Microsoft said revenues from its Windows division rose 3% from a year ago, in a sign of some stabilisation in the PC market and upgrades to devices with the newer operating systems.
The company saw a 40% jump in advertising revenues from its Bing search engine and gains from subscribers to its online Office 365.
The new Nokia phone division acquired this year added some $2bn to revenues but dragged on profits, the company said.
The Nokia unit subtracted some $692m from the Microsoft's bottom line, the company said.
Paul Ausick at 24/7 Wall Street said Microsoft remains dependent on Windows despite claims to the contrary.
"Microsoft's results continue to depend on Windows which in itself is no surprise. What is surprising is how hard it is for Microsoft to make any significant change in its dependence on Windows," he said in a blog post.
Despite the weaker profit, investors appeared encouraged by the increase in revenues. Shares in Microsoft gained 0.2% to $44.93 in electronic trading after the results.
Raimo Lenschow, analyst at Barclays, said Microsoft's enterprise strategy "is gaining significant traction".
The company "had another solid quarter in the enterprise, as execution remains solid with customers buying into Microsoft's portfolio of enterprise solutions", he said in a note to clients.
Microsoft completed its takeover of Nokia's phone unit in April in a move that strengthened its position in mobile devices. The cost was around $7.5bn.
Nadella, who became CEO earlier this year, is seeking to reinvigorate a company that had been the world's largest but which has lagged in recent years as Google and Apple have taken leadership of the tech sector.