Microsoft Corp. has booked $26.5 billion in revenue for its second quarter with sales increasing in its Surface and Mobile divisions, while XBox One sales declined.

Operating income was reported at $7.8 billion/ $0.71 per share, in line with market expectations.

The real surprise in the figures was an increase in Surface sales, a product that many had written off.  Surface delivered $1.1 billion, up 24 percent, off the back of sales of the Surface Pro 3, which the company says is selling three times as many of as its predecessor.

Microsoft’s phone hardware division saw revenue fall to $2.3 billion, down from $2.6 billion in its last quarter, but notably saw 10.5 million Lumia phones sold, a record for Microsoft but telling of the companies shift to selling low-cost, low end phones.

In gaming the XBox unit is losing sales, booking 6.6 million units for the holiday quarter down from 7.4 million units in the same quarter the year before. Microsoft argued that despite the fall in numbers, the XBox One was the highest selling gaming consoles in the United States for the quarter.

The company’s Window’s division continued its ongoing decline, with OEM Pro revenue declining 13 percent, and OEM non-Pro revenue dropping by the same amount.

In a related service provision, which is a key for Microsoft going forward as it starts to give Windows away for free, Office 365 Home and Personal subscribers increased to over 9.2 million, up 30 percent over the prior quarter.

Microsoft’s minnow search engine Bing put in a decent show with search advertising revenue growing 23 percent. The company claims that Bing’s U.S. market share is at 19.7 percent, up 150 basis points over prior year.

Commercial

Microsoft’s commercial revenue grew 5 percent to $13.3 billion, as Microsoft’s Cloud offerings gain market share.

Commercial cloud revenue grew 114 percent due to increases from Office 365, Azure and Dynamic CRM Online, landing an annualized revenue run rate of $5.5 billion.

The good news was offset as Office Commercial products and services revenue dropped 1 percent, although the company notes that this was due to the transition to Office 365.

Server products and services revenue was up 9 percent, with particularly strong grown in SQL Server and System Center.

Despite being in line with market estimates, investors didn’t see many positives to the figures announced and Microsoft shares were down 4.28 percent in after hours trading.

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