Microsoft Surface sales fall 26 per cent in its third quarter, but cloud revenues increased 11 per cent

Office 365 now boasts more than 100 million users

Microsoft has blamed falling sales of its Surface Pro hybrid tablet for missing its revenue targets in the third quarter.

During its fiscal third quarter earnings call on Thursday, Microsoft reported that Surface revenues fell by 26 per cent year-on-year, down from $1.1bn to $831m. It blamed this on increased competition and "product end-of-lifecycle dynamics".

This isn't too surprising. The Surface Pro 4 arrived in the UK back in November 2015, and hasn't been upgraded to support Kaby Lake or USB-C. On the other hand, rivals such as Dell and Lenovo have been quick to push out new and improved 2-in-1 devices, making Microsoft's latest offering look somewhat dated.

And it's unlikely we'll be seeing a new Surface Pro any time soon. Although the company is holding an event next week, this so-called 'MicrosoftEDU' event is tipped to see the launch of Windows 10 Cloud, the company's long-rumoured Chrome OS competitor.

This Surface sales slump took the shine off of an otherwise decent third quarter for the company. The company boasted that cloud revenues were up 11 per cent to $6.8bn, Azure revenues were up 93 per cent and Office 365 up 45 per cent, with the number of monthly active users topping the 100 million mark.

Cloud revenues rose 11 per cent to $6.8bn, driving largely by Azure growth. Azure revenues were up 93 per cent and its margin improved as well to 51 per cent, up from 48 per cent. Consumer Office revenues were also increased 15 per cent in the third quarter.

Microsoft's Xbox business continues to do well enough, with gaming revenues up four per cent year-on-year. The company said it expects that to increase "significantly" over the next year thanks to the impending launch of its Xbox Project Scorpio console.

The firm's traditional PC operating systems and software business had a mixed-bag quarter, with revenues down seven per cent to $8.8bn, but operating profit up 20 per cent to $2.1bn.

Overall, Microsoft's third quarter revenues hit $22.1bn, up by eight per cent year-on-year. However, analysts had been expecting even better and this caused a slight fall in Microsoft shares.