Microsoft slightly missed Wall Street's average revenue estimate for the latest quarter, as sales of its Surface tablets and laptops slumped in the face of revamped competition in the personal computer market.
Under chief executive Satya Nadella, Microsoft has sharpened its focus on the fast-growing cloud computing unit to counter a prolonged slowdown in the PC market.
This slowdown has weighed on demand for the company's Windows software.
The transition remained on track, with cloud margins improving and the company's annual commercial cloud revenue run rate - a bespoke metric closely watched by analysts - reaching $15.2 billion, a 50% year-on-year improvement.
It marks good progress toward its goal of pushing the figure to $20 billion by 2020.
Nadella said Microsoft reached 100 million monthly active users for Office 365 commercial, the firm's flagship cloud productivity software, the first time Microsoft has given such a figure.
For the fiscal third quarter, ended March 31, overall revenue on an adjusted basis climbed 6% to $23.56 billion, but missed analysts' average estimate of $23.62 billion.
Revenue from Microsoft's personal computing unit, its largest by revenue, fell 7.4% to $8.84 billion.
Analysts on average had expected revenue of $9.22 billion, according to research firm FactSet StreetAccount.
The business includes Windows software, Xbox gaming consoles, online search advertising and Surface devices.
Surface revenue plunged 26% to $831m, down from $1.3 billion the same time last year.
The lower-than-expected revenue in the personal computing division came amid an improvement in the broader PC market.
Worldwide PC shipments rose 0.6% in the first quarter of 2017, seeing growth for the first time in five years, market research firm IDC said earlier this month.
Microsoft's Windows OEM revenue, a measure of the company's licence revenue from computer makers such as Dell Technologies and HP Inc, rose 5%.
Dell, in particular, reported strong increases in computer sales driven by high-end laptops.
Revenue from the unit that Microsoft calls "Intelligent Cloud," which includes server products and the company's flagship cloud computing platform, Azure, jumped about 11% to $6.76 billion in the quarter.
Azure revenue soared 93% in the quarter.
The service competes with Amazon.com Amazon Web Services, the market leader in cloud infrastructure, as well as offerings from Alphabet's Google, IBM and Oracle.
Microsoft's said its commercial cloud gross profit margin reached 51%, up from 48% the previous quarter.
Microsoft has been emphasising higher-margin premium products such as databases and recently started building its own servers rather than relying on Hewlett Packard Enterprise, driving the cloud margins higher, analysts said.
Microsoft also, for the first time, reported a revenue growth rate for Dynamics 365, its competitor to Salesforce.com's online sales software. Revenue grew 82% in constant currency, though the firm did not give an absolute dollar total.
Microsoft also said last night that LinkedIn, which it bought for about $26 billion, contributed $975m in revenue in the quarter, $25m more than analysts had expected.
The company said its net income rose to $4.80 billion, or 61 cents per share, in the quarter, from $3.76 billion, or 47 cents per share, a year earlier.
Excluding one-time items, Microsoft earned 73 cents per share. Analysts on average had expected 70 cents per share, according to Thomson Reuters.