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Microsoft announced its financial results for the quarter ended September 30, 2022, the first quarter of its new financial year. The tech giant’s earnings were hit by PC market demand deterioration, impacting its Windows OEM and Surface businesses.

The Windows maker’s net income in the quarter was $17.6 billion, down 14% as compared to the corresponding period of the last fiscal year. Its first-quarter revenue was $50.1 billion, up 11% year over year.

The tech firm noted that its Windows OEM business revenue, including its Windows operating system, decreased 15% with continued deterioration in the PC market. It is in line with a recent Gartner report that stated that worldwide PC shipments dropped 19.5% in the third quarter of 2022, the steepest decline in over two decades.

“Despite the drop in PC shipments during the quarter, Windows continues to see usage growth,” Microsoft CEO Satya Nadella said during the company’s Q1 earnings call. He added that there are nearly 20% more monthly active Windows devices than pre-pandemic.

While Microsoft’s ‘More Personal Computing’ segment’s revenue fell due to a decline in Windows, its cloud business, Azure, as highlighted by the company, was a main driver of its first-quarter earnings. Microsoft cloud revenue in the quarter touched $25.7 billion, up 24% year-over-year.

“We continue to see healthy demand across our commercial businesses, including another quarter of solid bookings as we deliver compelling value for customers,” Microsoft CFO Amy Hood said.

The software firm’s revenue from Office commercial products and cloud services increased 7%, driven by Office 365 Commercial revenue growth of 11%. Its Office consumer products and cloud services revenue increased 7% as Microsoft 365 Consumer subscribers grew to 61.3 million.

The company’s business and employment-oriented online service LinkedIn’s revenue increased 17%, ahead of expectations driven by better-than-expected growth in talent solutions, Hood said.

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For Microsoft, gaming is one of the main focus areas and it has made significant progress on that front in the last few years, including the launch of its next-generation consoles, cloud gaming, and its $68.7 billion proposed acquisition of ‘Call of Duty’ maker Activision Blizzard, which it expects to close by the end of the fiscal year, according to Hood. It would be Microsoft’s largest-ever and the biggest gaming industry deal.

The company’s Xbox hardware revenue grew 13%. However, Xbox content and services revenue declined 3% in its first quarter.

“We are adding new gamers to our ecosystem, as we execute on our ambition to reach players wherever and whenever they want, on any device,” Nadella said. “We saw usage growth across all platforms, driven by strength off console. PC Game Pass subscriptions increased 159% year over year.”