Microsoft reported revenue of $23.8bn (£16.6bn) for the second quarter of the 2016 financial year, down from $26.5bn in the same period of last year.
However, revenue in its Intelligent Cloud division was up five per cent to $6.3bn, with server products and cloud services seeing a 10 per cent increase in turnover. The firm's cloud sales helped bolster its performance in the last quarter too.
This took the sting out of a drop in profit, from $5.9bn to $5bn.
Meanwhile, the tech group reported earnings of $0.78 per share, comfortably beating analysts' forecasts of $0.71 per share.
Revenue in More Personal Computing declined five per cent to $12.7bn, with phone revenue downy by 49 per cent. However, Xbox Live monthly active users grew 30 per cent year-over-year to a record 48m, which Microsoft operations chief Kevin Turner said highlighted a "strong holiday season" for the company.
Shares in the tech giant were up by over seven per cent in after hours trading.