As Microsoft earnings slide, shares plunge 10%

Microsoft beats on revenue, EPS inline
Microsoft beats on revenue, EPS inline

Microsoft on Monday reported a fall in its quarterly profit that was in line with Wall Street forecasts, as sluggish personal computer sales dampened demand for Windows software and the company struggled with the impact of the strong U.S. dollar.

Shares tumbled some 10 percent in early trading on Tuesday, putting the stock on pace for its worst day since July 2013.

The tech giant's second-quarter earnings fell to 71 cents per share from 78 cents a share in the year-earlier period.

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Revenue increased to $26.47 billion from $24.52 billion a year ago, helped by its recent acquisition of Nokia's mobile business.

Computing and gaming hardware revenue decreased 11 percent to $4 billion, dragged by lower Xbox platform sales, Microsoft said.

Commercial revenue sales totaled $13.3 billion during the quarter, while devices and consumer revenue came in at $12.9 billion. Commercial licensing revenue, a gauge of its flagship Windows business, fell 2 percent, year-over-year, primarily due falling revenue from from Office commercial.

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The company said commercial cloud sales reached an annualized revenue run rate of $5.5 billion, driven by its Office 365, Azure and Dynamic CRM Online offerings.

"It looks like they had good growth in terms of their cloud business. I think the area we're really focusing on is that space, in terms of its growth and how much they cannibalize their core windows enterprise server business," said Dan Morgan of Synovus Trust, which owns shares in Microsoft.

Satya Nadella, chief executive officer of Microsoft Corp.
Jin Lee | Bloomberg | Getty Images

Microsoft said its cloud business has seen triple-digit growth for the past six straight quarters.

"Microsoft is continuing to transform, executing against our strategic priorities and extending our cloud leadership," said Satya Nadella, Microsoft's CEO.

Wall Street expected Microsoft to post earnings of 71 cents per share on $26.3 billion in revenue, according to Thomson Reuters consensus estimates.

Microsoft last week rolled out two new products: Windows 10 and HoloLens, a pair of virtual reality goggles that incorporate computer screen images into the real world. Microsoft did not, however, state when the product would hit the shelves. Windows 10 will be the company's latest operating system and users will receive it for free.

The company is also aiming make its Xbox One console more attractive to consumers by slashing the price. It initially sold the Xbox One for $499, but then cut the price by $100 for an Xbox sold without the Kinect motion sensing device. Microsoft then shaved off another $50 for the holidays.

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The price cuts appear to have had a big impact. Microsoft said that, for both November and December, the Xbox One was the bestselling console in the U.S., though it declined to give exact numbers.

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—CNBC's Josh Lipton, Michelle Fox and Reuters contributed to this report.