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Earnings Release FY20 Q1

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Revenue increased $387 million or 4%.

• Windows revenue increased $452 million or 9%, driven by growth in Windows Commercial and Windows OEM, offset in part by a decline in patent licensing. Windows Commercial revenue increased 26%, driven by an increase in Microsoft 365 agreements, which carry higher in-quarter revenue recognition. Windows OEM revenue increased 9%. Windows OEM Pro revenue grew 19%, ahead of the commercial PC market, driven by healthy Windows 10 demand and strong momentum in advance of Windows 7 end of support. Windows OEM non-Pro revenue declined 7%, below the consumer PC market, driven by continued pressure in the entry level category.

• Search advertising revenue increased $203 million or 11%. Search advertising revenue, excluding traffic acquisition costs, increased 11%, driven by higher revenue per search.

• Gaming revenue decreased $196 million or 7%, driven by a decrease in Xbox hardware of 34%, primarily due to a decrease in volume of consoles sold. Xbox content and services revenue was relatively unchanged, primarily due to an increase in video games and subscriptions, offset in part by a high prior year comparable from a third-party title.

• Surface revenue decreased $44 million or 4%, driven by the timing of product lifecycle transitions.

Operating income increased $872 million or 28%, including an unfavorable foreign currency impact of 3%.

• Gross margin increased $688 million or 12%, driven by growth in Windows, Search, and Gaming. Gross margin percentage increased, due to mix shift to higher margin businesses.

• Operating expenses decreased $184 million or 7%, driven by the redeployment of engineering resources, offset in part by investments in Gaming.

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Information contained in these documents is current as of the earnings date, and not restated for new accounting standards

Microsoft Corp (MSFT)

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