Microsoft moved to shift focus from its Windows PC division to its mobile and cloud operations in what the company and analyst termed a transitional quarter for the Redmond giant.

Microsoft reported that revenues over the first quarter were $20bn up 18 percent on the quarter. The company’s business division posted an 8 percent gain on the quarter while the server and tools branch saw revenues climb by 11 percent.

Riding on the upgrade cycle of Windows 8, the Windows division grew revenues of 23 percent, while the online services division grew by 18 percent.

In outlining the quarter, Microsoft executives noted that the company was continuing to shift its focus toward the cloud services division, a key market for Redmond as it tries to avoid being pulled down by dwindling PC hardware sales.

Speaking to analysts on the report, Microsoft chief financial officer Peter Klein said that the company is working to increase its reach into the tablet market, including expanding the reach of Windows 8 into the small-screen tablet space.

“The biggest thing we are doing is helping them develop new and improved user experiences across the price points,” Klein said.

Rob Helm, managing vice president of research for Directions on Microsoft, said that the company would likely be looking to smaller form factors with both its branded hardware lines and OEM partners as it moves to take a cut out of the fastest-growing portions of the tablet space.

“Microsoft, like Apple, was late recognise how important smaller tablets were going to be market,” Helm told V3.

“I think it is going to turn rapidly around on that, by Christmas or back-to-school we will see devices more like the Nexus 7 or Kindle that are more portable and cheaper.”

Helm noted that Microsoft’s increased efforts to ink its business customers to Windows enterprise agreement contracts will allow the company to collect Windows licencing fees up front and get past a changing upgrade cycle as customers hang on to older systems.

That shift, along with the movement into cloud computing services, looks to be Microsoft’s strategy for overcoming the drop in PC sales.