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Microsoft’s revenues fell short of expectations in its latest quarter on a slump in sales of its Surface PC/tablet hybrid, pushing the company’s shares down by nearly 2 per cent in after-market trading.

However, Surface’s woes disguised continued strong growth in the company’s cloud businesses and rising profit margins. The decline in low-margin hardware sales also boosted overall earnings for the quarter, pushing them ahead of Wall Street’s expectations.

The Surface, a so-called 2-in-1 device that helped to kick-start a new category of mobile computers, has faced stronger competition as others have jumped into the field. As a result, Surface sales were 25 per cent down on a year before.

That pushed overall revenues in the company’s “more personal computing” division down by 7 per cent, despite a more robust PC market that has brought a return to growth in the Windows operating system.

The software company’s shares had risen strongly ahead of earnings in anticipation of a repeat of recent periods, which have seen a firming of profit margins as investments in new cloud businesses start to pay off.

Pro-forma earnings per share topped expectations, rising 18 per cent compared to the company’s performance in a weak quarter the year before. Revenues rose by 7 per cent to $23.6bn, with earnings per share reaching 73 cents, compared to market expectations of 70 cents.

The rapid cloud growth was evident again in the three months to the end of March. Cloud platform Azure registered a 94 per cent increase in revenues, based on a constant currency comparison, almost the same as the preceding three months, while the Office 365 commercial service reported 45 per cent growth.

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