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Microsoft’s Revenue Falls Short of Estimates

Microsoft on Thursday reported quarterly revenue that slightly missed analysts’ estimates, as robust demand for its cloud computing services failed to offset weak growth in its personal computing division.

Shares of the world’s largest software company fell 1% to $67.62 in trading after the bell.

Under CEO Satya Nadella, who took the helm in 2014, Microsoft has sharpened its focus on the fast-growing cloud computing unit to counter a prolonged slowdown in the personal computer market, which has weighed on demand for its Windows software.

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, in the quarter. 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 personal computers.

Surface revenue plunged 26% in the quarter to $831 million, down from $1.3 billion in the year-ago quarter.

Sales of high-end computers from other makers, along with the fact that many Surface products have been on the market for many months, hurt Surface sales, said Zack Moxcey, an investor relations director for Microsoft.

The lower-than-expected revenue in the personal computing division came amid an uptick in the PC market.

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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 license 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.

Cloud Soars

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 Inc’s Amazon Web Services, the market leader in cloud infrastructure, as well as offerings from Alphabet’s Google, IBM and Oracle.

Microsoft also, for the first time, reported a revenue growth rate for Dynamics 365, its competitor to Salesforce.com Inc’s online sales software. Revenue grew 82% in constant currency, though the firm did not give an absolute dollar total.

The company’s 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 I/B/E/S (http://bit.ly/2oQAzSJ)

Microsoft said LinkedIn, which it bought for about $26 billion, contributed $975 million in revenue in the quarter.

Microsoft’s shares (MSFT) had risen 9.9% this year through Thursday, eclipsing the 7% gain in the broader S&P 500 .