Charles Arthur explains this well in plain English:
Despite the brave top-line numbers, Microsoft’s Windows business is actually hurting. Surface isn’t contributing much yet, traditional PC sales are sliding, it doesn’t have a tablet competitor yet (though Klein said clearly that it will have a “smaller” competitor – aka a rival to the iPad mini – soon enough), and the only thing really keeping everyone smiling is upgrades from businesses facing the wall of XP’s end of life.
All of this is masking the inevitable.
Though I do have to give props to Microsoft for putting the Surface hardware under the Windows Division. Devices obviously generate far more revenue than software. And even though sales haven’t been great, this is a pretty good bottom-line mask. For now.