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Microsoft Corporation (MSFT) profits beat expectations thanks to tablets, cloud

Microsoft announced higher-than-expected earnings for the last quarter. Cloud computing and the Surface tablet spurred Microsoft's profits.

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Microsoft CEO Satya Nadella gestures as he speaks at the company's "build" conference in San Francisco, California on April 2.

Robert Galbraith/Reuters/File

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After recent struggles to find success in new markets, Microsoft is starting to show signs of success.

Microsoft announced Thursday that the company saw a 25 percent increase in sales in the last quarter, which ended on Sept. 30. During the quarter, the company had a net income of $4.54 billion. That's down from the $5.23 billion the company made during the same quarter a year ago. But total revenue was up from to $23.2 billion, from last year's $18.53 billion. Analysts surveyed by Thomson Reuters had expected Microsoft to make $22.02 billion in revenue.

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Microsoft's growth was largely spurred by the acquisition of Nokia's devices and services division. Microsoft bought the Finnish company for $1.14 billion in April. Though part of the dip in profits were caused by the costs associated with buying Nokia, the phone business added $2.6 billion in revenue to Microsoft's business. 

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“We are innovating faster, engaging more deeply across the industry, and putting our customers at the center of everything we do, all of which positions Microsoft for future growth,” Satya Nadella, chief executive officer of Microsoft, said in a statement. “Our teams are delivering on our core focus of reinventing productivity and creating platforms that empower every individual and organization.”

Though the last quarter showed signs of progress, this has been a mixed calendar year for the company. In February, Steve Ballmer stepped down as Microsoft's CEO, amid criticism that the company had lost its ability to innovate and was falling behind other tech giants. Then, in July, Microsoft announced it would cut costs by laying off up to 18,000 employees by the end of June 2015. The layoffs amount to 14 percent of the company's global workforce. Most of the cuts are related to Microsoft's acquisition of Nokia's mobile phone business. 

In recent years, Microsoft has struggled to find success with its personal computers and traditional software business. Windows 8 never caught on with companies and worldwide shipments of PCs are down 1.7 percent, according to the research firm IDC. Microsoft has also struggled to gain a foothold in the mobile market. While Nokia's mobile hardware business does well, the company's share of the smartphone market has declined in recent quarters. And though Microsoft is finding a slight profit with its Lumia phones, selling 9.3 million in the quarter, it is not one of the company's major revenue sources.

“We have work to do...,” Amy Hood, Microsoft’s chief financial officer, said about the company's phones, according to The New York Times.

Microsoft has found recent success in the cloud computing market. During the quarter, Microsoft said its commercial cloud revenue grew 128 percent from the previous quarter. Traditionally, Microsoft has been well known for its boxed Office suite of applications, but the company is trying to turn that into a subscription-based cloud business. Microsoft has seven million subscribers to its home and personal versions of Office, an uptick of 25 percent from the previous quarter.

Sales of Microsoft's Surface tablets were also up in the quarter, to more than $900 million. The tablet earned only $400 million during the same time last year. “I’m very proud of Surface Pro 3,” Ms. Hood told The Times.

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Though these numbers weren't stellar, investors have been impressed, especially compared to weak earnings by other technology companies.

“I thought these were stellar numbers in a choppy IT spending environment,” Daniel Ives, an analyst at FBR Capital Markets, told The New York Times.

Microsoft's stock is up almost 5 percent in the past five days.