Editor’s note: Microsoft is a study in contrasts as cloud, search and Surface segments soar past its legacy Windows business, writes Technology Business Research analyst Jack Narcotta after reviewing the tech giant’s latest earnings last week.

HAMPTON, N.H. – Strong revenue growth in cloud services is a positive sign for Microsoft (Nasdaq: MSFT), but overcoming a weakened PC market remains a challenge

It is clear that CEO Satya Nadella’s efforts to focus Microsoft around cloud services such as the Azure cloud computing platform and online productivity platform Office 365 are helping strengthen the company’s footprint in the fast-growing cloud market.

Azure cloud platform revenue more than doubled year-to-year in calendar 4Q15 and sales of Office 365 climbed nearly 70% from a year ago — clear indications of the momentum the subscription-based business model championed by Nadella is generating in the global marketplace. Efforts to seek new revenue opportunities through realigned software and services portfolios have bolstered its go-to-market messaging in cloud, and helped bring Microsoft’s portfolio more in line with the demands of its customers as well as maneuver around myriad competitive threats in cloud, enterprise mobility, security and applications.

However, continued challenges to reverse Windows’ revenue decline are offsetting growth in these key segments. Microsoft’s More Personal Computing segment, of which TBR estimates Windows OEM license revenue accounted for approximately 60% of segment revenue, declined 5% year-to-year to $12.7 billion.

Even with, per Microsoft, Windows 10 being adopted 140% faster than Windows 7’s roll-out, consumer subscriptions to Office 365 surpassing 20 million, Microsoft’s cornerstone business unit remains under siege from weaker consumer demand for PCs and longer PC life cycles in commercial markets.

As a result, Microsoft’s performance in 4Q15 was impacted by the decline in Windows licensing revenue; overall revenue fell 10.1% year-to-year to $23.8 billion, gross profit declined 14.8% from 4Q14 to $13.9 billion, and operating profit tumbled 22.5% year-to-year to $6 billion.

Declines across these metrics would have been narrower was it not for the impact of foreign currency exchange rates. The volume of revenue and profit are clear indicators that Microsoft remains a very successful and profitable company. However, TBR expects revenue and profits to continue to decline through 2016, due in part to challenges facing its Windows business.

Longer PC refresh cycles are impeding Windows 10’s momentum

While the rapid pace of Windows 10 activations and Office 365 subscriptions, and narrower year-to-year revenue declines from its Windows OEM business over the last five quarters, are signs that Microsoft may be approaching the nadir of the Windows trajectory, TBR believes the majority of activations originated from customers’ existing PCs, not new PCs entering the market.

A plethora of “good enough” PCs in the global marketplace, especially in commercial PC segments, well-equipped to support a direct upgrade from Windows 7 to 10 — in contrast to previous Windows releases that required customers purchasing a new PC — complicates Microsoft’s efforts and those in conjunction with its OEMs to rekindle PC unit shipment growth.

Increased Windows 10 activations in 2016 by existing PC customers will help limit year-to-year Windows revenue decline, but revenue growth will remain elusive until Microsoft and its OEMs discover the right mix of PC features, functionality and pricing that kick-starts growth in the global PC market.

Slowing growth in Windows-related revenue highlights the importance for Microsoft to continue to pursue its ambitions as a first-party manufacturer with its Surface Pro 4 and Surface Book, which in turn have inspired new PC designs in nearly all of its OEMs. Surface Book and Surface Pro 4 will help Microsoft expand its foothold in the market — Surface PC revenue climbed 29% year-to-year to $1.3 billion in 4Q15 — and in similar fashion to earlier Surface devices, they will serve as a reference design for Microsoft’s OEMs.

Cortana is nearly ready for prime time as the search technology crosses over into search and gaming consoles

Reinvigorating the global PC business and cultivating growth for Windows 10 will also have a ripple effect on Microsoft’s Gaming and Search businesses, particularly as Cortana, the voice-controlled virtual assistant technology embedded in Windows 10 proliferates beyond PCs and into mobile devices and Xbox gaming consoles. The impact of injecting Windows 10 functionality into the Xbox gaming platform has yet to produce a tangible impact on Gaming revenue, which as of 4Q15 remains dominated by sales of video games and Xbox Live subscriptions, content and media purchases; TBR expects the integration of Cortana into users’ search for content will supplement display and programmatic advertising revenue generated by Bing.

However, Microsoft executives stated the 20% uptick year-to-year in Bing search revenue was helped in large part by 30% of total segment revenue driven by searches performed via Cortana on Windows 10 devices. Promoting greater use of Cortana, and by extension promoting greater use of Bing, is an integral component of Microsoft’s future value proposition for the Windows operating system and its suite of applications.

(C) TBR