Microsoft (NASDAQ:MSFT) shares plunged in the wake of its second-quarter earnings report last month. The Windows maker -- which had been a strong outperformer for most of the last two years -- is now down more than 10% since Jan. 26.

But the stock could be headed lower.

Below are three reasons Microsoft shares could fall further. It should be noted, however, that even if all three scenarios come to pass, Microsoft shares may hold up -- a general market rally could always buoy the stock even if its core business is in decline. Nevertheless, Microsoft investors should hope the company can avoid the following scenarios.

Windows revenue continues to contract
The recent sell-off in Microsoft shares was prompted, largely, by a decline in its Windows business. Revenue from its operating system -- both Pro and non-Pro -- contracted 13% on an annual basis last quarter.

Microsoft's Windows business has been under assault for several years now as mobile devices increasingly pressure the demand for traditional PCs. The market appears to be at a bit of a standstill -- businesses still need PCs, consumers still prefer them, by and large, for some tasks -- but there's a real risk that Windows revenue could see further declines in the quarters ahead.

Apple, in partnership with IBM, has begun a concentrated effort at popularizing its mobile devices among business users. In particular, its iPad -- should it receive the widely rumored larger screen -- could cannibalize sales of some Windows-powered laptops. The same is true for consumers, as tablets become increasingly powerful. Google's Chromebooks have seen their popularity skyrocket, especially among educational institutions.

In an effort to fend off these competitors, Microsoft has begun to discount versions of Windows sold on devices with smaller screens. Microsoft admitted that these discounts affected its Windows revenue last quarter. Further discounts may be needed to protect market share, or the relevancy of Windows could continue to fade.

Cloud growth stagnates
Somewhat offsetting its disappointing Windows performance, demand for Microsoft's cloud offerings continues to grow at a rapid pace. Last quarter, Microsoft's cloud commercial revenue rose 114% on an annual basis and is now on pace for an annual run rate of $5.5 billion.

But investors may expect more. Some, including activist hedge fund ValueAct, have argued for Microsoft on the basis of its potential to become the largest cloud computing company in the world.

Yet, it's still a relatively new -- and somewhat unproven -- business model, and competition is intense. If Microsoft's growth engine slows -- if its prospects of dominating in the cloud dwindle, investors may be prompted to dump shares.

Demand for its hardware dips
Lastly, though perhaps least significant, demand for Microsoft's hardware could fall flat. Admittedly, Microsoft isn't a major force in hardware, but its $7 billion purchase of Nokia's handset business and development of the Surface tablet were moves intended to give Microsoft more of a role in the creation of Windows devices.

To date, neither has been particularly successful. Microsoft's Surface-related revenue rose 24% last quarter, but it still came in at a modest $1.1 billion. Microsoft sold 10.5 million handsets, but generated just $2.3 billion in sales -- a 11% decline on a sequential basis.

Microsoft still has many PC partners (Asus, Acer, Lenovo, Dell, etc.), and expectations for Windows Phone are, at best, modest. But failure in hardware would call into question Microsoft's strategy.

A company in transition
Although Microsoft remains one of the largest and most successful tech companies on earth, generating billions quarterly and sitting on a cash pile worth roughly one-quarter of its market cap, it's a company in transition.

The Microsoft of the past depended on the sale of Windows and Office licenses. The Microsoft of the future could depend on cloud services and, to some extent, device sales. While it may ultimately get there, there are sure to be bumps along the way.