Software giant Microsoft Corporation (MSFTFree Microsoft Stock Report) has reported revenues and earnings of $20.4 billion and $0.68 a share for its fiscal third quarter (years end June 30th). Our estimates were for $20.4 billion and $0.64 a share, respectively, with the stronger performance at the bottom line arising from better profit margins than we had envisioned. The company's first earnings report with new CEO Satya Nadella at the helm was greeted warmly by investors, who bid MSFT shares slightly higher.

The Devices and Consumer group put up a respectable showing. On the license side, Windows OEM and Office Consumer were notable contributors. As has been the case for some time, Windows continues to find strong demand from enterprises, though softness in the consumer arena remains. That said, Microsoft is expanding its efforts to take the Windows franchise to a broader platform base, with products and pricing specifically targeted at rapidly changing consumer markets. Meanwhile, revenues advanced nicely on the hardware side, reflecting growth in Surface and Xbox.

The Commercial segment once again showed strength, with Microsoft benefiting from enterprise customers' moves into cloud computing. On point, the combination of Azure (infrastructure) and Office 365 is becoming quite potent. Microsoft's breadth of products and services in this arena makes for a formidable competitor, and further investments in the Commercial group should yield high returns.

From a broader perspective, Satya Nadella is clearly focused on a strategy to build on Microsoft's strengths, as the company refines its focus on the rapidly changing consumer markets, particularly in mobile and cloud. An early example in this regard is the offering of Office 365 for iPad. Although Microsoft will have to play a game of catchup in this area, new leadership's wider view on how the company's strengths can be applied to improve its position is refreshing.

Our revenue and earnings estimates for the June quarter are $20.9 billion and $0.65 a share, bringing the estimated total for the year to around $83.5 billion and $2.73. These figures do not include the Nokia acquisition, which will have an effect in the company's final quarter. At this writing, Microsoft has given no guidance with respect to its financial performance, inclusive of Nokia. Adding it all up, we advise those currently holding MSFT shares continue to do so.

About The Company: Microsoft Corp. is the largest independent maker of software. It develops and sells products for a wide range of computing devices. The company also sells the Xbox video game console. Revenue sources in fiscal 2013 were as follows: Microsoft Business, 31.8% of total; Windows & Windows Live, 24.7%; Server and Tools, 26.0%; Entertainment & Devices, 13.1%; Online Services, 4.1%; Other, 0.3%. Research & development spending as a percent of 2013 sales was 13.4%.

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.