The reason was a shortfall in the company's More Personal Computing segment, which includes Windows and hardware like the Surface tablets, booked $8.84 billion in revenue — well behind average expectations of $9.22 billion (according to StreetAccount), and down 7% from last year. Surface revenue dropped 26% to $831 million, its lowest figure in more than a year, in part because of more competition from other similar devices and ahead of expected new models expected out later this year.
On a call with CNBC, Microsoft said the shortfall was specifically due to "lower than expected Surface Pro unit volume," but noted that one big reason for that product is to spur growth of similar "2-in-1" devices (combo tablet-laptops) across the entire industry.
Microsoft said it was encouraged by sales of devices from other manufacturers — revenue from sales of Windows to other manufacturers was up 5% in constant currency, ahead of the overall PC market.
Operating expenses jumped 12% from last year's quarter, to $8.4 billion, due in large part to the acquisition of LinkedIn. This was the first full quarter in which LinkedIn was part of Microsoft, and it drove $965 million in operating expenses, including $153 million in amortization of intangibles — a term that usually covers things like goodwill, trademarks, or brand value. The segment lost $386 million on $975 million in revenue during the quarter.
Watch: LinkedIn brings $1B in revenue for MSFT