Microsoft's cloud sales soared by 114 percent in the firm's second quarter, helping to generate over $26bn in total revenue, up almost $2bn from the same period last year.
However, declining demand for Windows software saw overall profits fall by $695m after net income fell to $5.8bn, from $6.5bn in Q2 2013.
Microsoft's 2015 second-quarter financial results also revealed that overall revenue grew by eight percent, although a shift in focus from software to cloud and mobile saw net income decline by 10 percent.
The drop in profits was fuelled in part by a $243m restructure charge, which included the purchase of Nokia's smartphone business.
Lacklustre commercial sales of the Windows operating system also ate into Microsoft's profits, as software revenue fell by two percent.
Satya Nadella (pictured), Microsoft's chief executive, said during an earnings call that the decline in Windows sales came as no surprise.
"As expected, the one-time benefit of Windows XP end-of-life PC refresh cycle has now tailed off," he added.
Microsoft noted that the decline in software sales can also be attributed to customers buying the cloud-delivered Office 365 over traditional Microsoft Office products.
This equated to a 30 percent rise in users of its consumer-focused Office 365 Home and Personal services to 9.2 million.
Nadella was keen to point out that, while profits have tumbled, Microsoft's goal to pursue the development of its cloud service portfolio will drive growth in the business space.
"[Cloud] is an area where we're extending our leadership position and accelerating our innovation," he said.
"We're also making progress in our consumer cloud services. Office 365 Home and Personal revenue grew nearly 150 percent year over year as we added 2.1 million net new subscribers since the last quarter."
Despite a drop in profits, Microsoft reported healthy revenues from hardware sales. The company sold over six million Xbox One consoles in the quarter, and generated $2.3bn in revenue from sales of 10.5 million Lumia smartphones.
Microsoft's Surface tablet range also sold well during the quarter. A 24 percent sales increase was driven by the latest Surface Pro 3, generating $1.1bn in revenue.
With Windows 10 on the horizon, Microsoft will be looking to reinvigorate operating system software sales, alongside growing other areas of its business.
Cloud sales have been rising at many other larger vendors, such as IBM and SAP, but they too have not been enough to offset losses in other areas, leading to falling revenues and profits.
IBM may be forced into making huge job cuts across the world in order to try and halt its sliding revenues as a result.
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