Windows Phone sales are in freefall

The company reported earnings per share (EPS) of $0.47, a 25% drop from the same quarter a year ago.

Revenue from the company's Office 365 productivity subscription service was up 63 percent, and consumer subscribers to Office 365 reached 22.2 million, according to the company.

While the company's cloud services and Office 365 revenues grew at a decent rate, the revenue from Intelligent Cloud, which houses the Azure cloud, only grew revenue by 3%, up 8% in constant currency, to $6.1bn. Improved profit margins were driven by lower expenses in Microsoft's phone business, which the company scaled back drastically previous year, and sales of Surface portable devices.

Analysts surveyed by Thomson Reuters had expected Microsoft to report adjusted earnings per share of 64 cents and sales of $22.09 billion.

Enterprise Mobility customers more than doubled to over 27,000, and the installed base grew almost 4x.

But investors reacted negatively, driving Microsoft shares down to $51.78 from Thursday's close of $55.78. Surface revenue accounted for $1.1 billion in Q1, representing 54% YoY growth from $713 million in Q1 2015.

Without the currency impact, revenue for the company was $22.1 billion (up 5%), earnings $0.62 (up 3%), operating income $6.8 billion (up 10%), and net income $5 billion (up 6%), but failed to do so.

With the PC market in what appears to be continual decline, and Windows Phone sales adding up to a vanishingly small percentage of the overall market, Satya Nadella's decision to push hard into the cloud and to effectively decouple Office from Windows looks ever more effective. The company's latest operating system software was released at the end of July and is now on running on more than 270 million devices, the company said last month. Microsoft said its Azure business rose by 120%, in constant-currency terms, without disclosing an actual revenue figure.

Even some of the losses are positive, such as the fact that Windows OEM revenue declined 2 percent.

Revenue in the Productivity and Business Processes segment grew 1 per cent (up 6 per cent in constant currency) to US$6.5 billion.

Sales were impacted by the ever-shrinking PC market and, again, the impact of the strong dollar.

Xbox Live subscribers grew to 46 million monthly active users, up 26% from the year prior. Microsoft said it was able to outperform the PC market because of a "higher consumer premium device mix".

Search revenue was up significantly, growing by 18 percent in constant currency, thanks to both higher revenue per search and higher search volume.

Source: Windows Phone sales are in freefall