Microsoft might have surpassed Wall Street’s expectations on profits and revenues in its latest results, but the bigger news is that the company’s painful transition is well underway, and it won’t be able to rely on its traditional cash cows for much longer.

But first the good news. The company made $4.98 billion in net income on $21.7 billion in revenue over the past quarter, and that’s up from $20.4 billion during the same period last year. In addition, Microsoft’s enterprise cloud is looking just dandy thanks, with a $6.3 billion projected run rate for this year, up from $5.5 billion just three months before.

The bad news? Licenses for Windows and Office are nosediving like crazy, helped in no small part by the PC market’s continued decline.

Microsoft’s Devices and Consumer Licensing business, which is the unit that sells software like Microsoft Windows on new PCs, Microsoft Office on consumer PCs, and Windows Phone on non-Microsoft devices, saw revenues fall by 24 percent, amounting to around $1.1 billion less than the previous quarter.

Windows licenses were hit particularly hard. Revenues from license sales to consumers slumped by 26 percent, while licenses to businesses fell by 19 percent, amounting to a 22 percent dip in revenues overall. Microsoft had all the excuses to explain this slump of course, blaming the weak PC market and consumer’s tendency to buy cheaper devices, plus difficult comparables to the year before, when the end of support for Windows XP drove a large number of upgrades.

That doesn’t explain the dip in Office sales though. Office consumer revenues fell by a whopping 41 percent, while commercial revenues for the software dipped 16 percent. According to Microsoft, this is partly due to the massive growth of Office 365, which is sold on a subscription-based model. Of course, the PC market decline also contributed, because less PCs sold means fewer copies of Office will be sold with them.

Microsoft’s CEO Satya Nadella didn’t appear unduly concerned by the slump in its traditional businesses though. That the cloud is steadily growing as an alternative cash cow is in line with the company’s long term, mobile-first, cloud-first strategy, which recognizes the company can’t keep making money using its traditional business models forever. And investors seem to realize this too – just three hours after Microsoft posted its results, its stock rose by more than 3 percent.

As Time reports, Nadella downplayed the importance of the decline in Windows licensing sales, instead choosing to speak about its burgeoning cloud sales. This includes not just Azure and all the services it sells, but also products like Office 365. According to Nadella, the cloud will continue to grow in terms of revenue, and also serve as an avenue to new markets. As an example, Nadella said that selling Office 365 as a cloud-based platform meant that smaller organizations would be able to buy more sophisticated versions of that product, whereas they previously lacked the infrastructure to do so. And once companies buy into one of Microsoft’s cloud services, it’s much easier to sell them on others, Nadella said.

That’s not to say it will be easy. Microsoft will have to fight every step of the way to secure cloud customers ahead of rivals like Amazon Web Services and Google, who offer a whole host of services that rival its own.