What just happened? Microsoft has announced its fiscal Q3 2023 financial results, revealing increased revenues from its cloud and server businesses but lower income from the Windows and Xbox divisions. The company's top and bottom lines exceeded market expectations, thanks largely to Azure and other cloud services.

Overall, Microsoft recorded $52.9 billion in revenues for the quarter ending March 31, 2023, up 7% from the same period last year. According to CNBC, the earnings were slightly higher than the $51.02 billion predicted by analysts. Operating income was $22.4 billion, up 10% from fiscal Q3, 2022, while net income was $18.3 billion, up 9% year-on-year. Earnings per share came in at $2.45, higher than the $2.23 expected by analysts. The company's shares were up 9% in aftermarket trading on Tuesday following the announcement.

While the overall results were positive, the growth was hardly uniform across all divisions. Windows OEM revenue dropped a whopping 28% last quarter, thanks largely to the shrinking global PC market. According to market analysis firms IDC and Canalys, the worldwide PC industry contracted around 30% year-on-year during the last quarter, dropping below pre-pandemic levels. The shrinking PC market negatively affected Windows OEM license sales, despite a largely positive response to Windows 11 from the media and users alike.

Hardware revenues were also down by as much as 30%, although Xbox content and services revenues rose 3%. Overall gaming revenue, however, dropped 4%. While multiple reasons are at play behind the disappointing Xbox console sales in recent quarters, one of the factors hitting the company hard is the lack of blockbuster first-party titles from Microsoft over the past year.

On the positive side, one of the stellar performers was the 'Server products and cloud services' division, which recorded 17% higher revenues, driven by a 27% growth in Azure and other cloud services. Overall, revenue from the company's Intelligent Cloud services came in at $22.1 billion, an increase of 16% over the same period last year.

In the final fiscal quarter of 2023, Microsoft expects to earn revenues between $54.85 billion and $55.85 billion. As per CNBC's calculations, it would imply a growth of around 6.7%, which would once again be higher than analyst expectations. According to Microsoft CFO Amy Hood, the company will continue to increase its cloud and AI-related investments as it expects these areas to be its main growth drivers going forward.