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.
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.
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.