Its stock rose 6 percent in after-hours trading.
"Our devices and services transformation is progressing," CEO Steve Ballmer said in a statement with the company's fiscal first-quarter results. Ballmer said in August he'll step down within 12 months and the search is on to find his successor.
Microsoft's net income in the three months to Sept. 30 grew 17 percent to $5.24 billion, or 62 cents per share, from $4.47 billion, or 53 cents per share, a year ago.
That beat the 54 cents expected by analysts polled by FactSet.
Revenue rose 16 percent to $18.53 billion, also beating the $17.79 billion analysts were expecting.
Microsoft's revenue from its Surface tablets hit $400 million, representing a gain in revenue and unit sales from the quarter that ended in June, though profitability in the division that houses Surface fell. It's the first time the company has broken out Surface results.
Revenue from its flagship Windows operating system from manufacturing partners declined, while enterprise software business grew.
Commercial licensing -- representing enterprise products like Windows Server and System Center -- is now by far Microsoft's biggest reporting segment. Its revenue rose 7 percent to $9.59 billion. Devices and consumer licensing revenue, containing revenue from Windows and Windows Phone, fell 7 percent to $4.34 billion.
It has been a busy year for Redmond, Wash.-based Microsoft Corp. Last month, it vowed to acquire Nokia's smartphone business for $7.2 billion and this month it launched sales of the latest version of its Surface tablets. Next month it will launch its latest game console, Xbox One.
The transformation of Microsoft's business is crucial as sales of personal computers -- once Windows' mainstay -- continued to fall. Research firm IDC said that global shipments of PCs fell 8 percent in the third quarter of the year for the sixth straight decline. Another firm, Gartner, put the decline at almost 9 percent.
Microsoft's shares rose $1.93 to $35.65 in extended trading following the release of the earnings report.
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