Microsoft posted revenue of $23.8 billion in the second quarter of its 2016 financial year, down 10 percent from the same quarter a year ago. Operating income was $6.0 billion, a 23 percent drop, and net income was $5.0 billion, a 15 percent fall. Earnings per share were $0.78, representing a 13 percent decline.

Just as it has done for the past few quarters, and mirroring Apple's earnings release earlier this week, Microsoft attributed a substantial part of the decline to the strong dollar. With prices outside the US being increased to preserve their dollar value, non-US sales are becoming decreasingly valuable to Microsoft. This depressed revenue by an estimated $1.2 billion. The company also reports that there was a further $1.9 billion impact from revenue deferrals related to Windows 10 and bundled software.

The cloud annualized revenue run rate—a conjectural number that former CEO Steve Ballmer described as "bullshit"—across all commercial offerings now stands at $9.4 billion, reflecting growth both in Office 365 and Azure. Current CEO Satya Nadella says that the opportunity represented by the enterprise cloud market is "larger than any market [Microsoft] has ever participated in."

The company is now divided into three reporting segments: Productivity and Business Processes (covering Office, Exchange, SharePoint, Skype, and Dynamics), Intelligent Cloud (including Azure, Windows Server, SQL Server, Visual Studio, and Enterprise Services) and More Personal Computing (covering Windows, hardware, and Xbox, as well as search and advertising).

Productivity and Business Processes revenue was $6.7 billion, down 2 percent year on year, with operating income of $3.3 billion, a drop of 8 percent. This decline was attributed almost entirely to a 7 percent impact from the strong dollar. Office revenue from consumers were down a substantial 14 percent, suffering from the dual effects of the strong dollar and the weak consumer PC market. The company now has 20.6 million subscribers to consumer-oriented Office 365 plans, a quarter-on-quarter increase of 2.4 million, and corporate Office 365 revenue was up nearly 70 percent in constant dollars. Dynamics CRM online doubled its seat growth rate, for a 3 percent actual (11 percent constant currency) revenue increase.

Intelligent Cloud revenue was $6.3 billion, up 5 percent, with operating income of $2.6 billion, down 1 percent, with a currency impact of around 6 percent. Server product and cloud service revenue both increased by 3 percent, and Azure revenue was up a substantial 12 percent. SQL Server revenue was also up, though Windows Server revenue dropped. Enterprise Services revenue grew 10 percent off the back of Premier Support Services growth.

More Personal Computing revenue was $12.7 billion, down 5 percent, with operating income of $2.0 billion, up 35 percent. Currency impact was about 3 percent. Phone revenue was down 53 percent, with both Lumia and feature phone sales falling off a cliff: 5.5 million and 22.5 million, respectively, compared to 10.5 and 39.7 million a year ago. Surface revenue was up 22 percent, to $1.3 billion in the quarter, buoyed by the release of both Surface Book and Surface Pro 4.

Windows revenue dropped 8 percent with a decline in PC sales and patent licensing fees. Windows OEM revenue fell 5 percent, with both the consumer and business PC markets declining. Pro Windows revenue fell 6 percent; non-Pro Windows revenue fell 3 percent, outperforming the consumer market.

Gaming revenue was up 5 percent on the strength of Xbox Live and game revenue, partially offset by reduced Xbox hardware revenue. Xbox Live monthly active users are up 30 percent year-on-year, hitting 48 million last quarter. Game revenue was up 47 percent thanks to Halo 5, but hardware revenue was down 9 percent. Microsoft sold more Xbox Ones but fewer Xbox 360s, and the Xbox Ones were sold at a lower price than before.

Search revenue was up 17 percent, with both more searches using Bing, and more revenue generated per search. Bing now stands at 21 percent market share in the US, helped on its way by Windows 10.

In all, the numbers told a story that is by now familiar: the cloud is strong, but the PC market is hurting. The collapse in phone sales is an inevitable consequence of the scaled back ambitions, incomplete product line-up, and problematic software support. The Surface story looks happier; after initial stumbles, the hardware seems to have staked out a solid slice of the market, as well as spawning numerous copycat systems from Dell, HP, and Lenovo. Nadella also said that there have been 900 million downloads of Skype and 340 million downloads of the Office apps on iOS and Android. So far, at least, the impact of these on the balance sheet appears to be negligible at best.

Listing image by Julien GONG Min / Flickr