Windows Division revenue decreased from the prior year, due mainly to the deferral of $783 million of revenue related to Windows 8 Pre-Sales and $384 million of revenue related to the Windows Upgrade Offer. Windows Division revenue was also negatively impacted by a decline in the PC market, decreased inventory levels within distribution channels as OEMs and retailers began to prepare for the Windows 8 launch, and continued higher relative growth in emerging markets, where average selling prices are lower than developed markets.
Windows Division operating income decreased, due mainly to lower revenue. Operating expenses were impacted by higher research and development expenses, which were offset by lower sales and marketing expenses. Research and development expenses increased $43 million or 10%, primarily associated with Windows 8 and Surface. Sales and marketing expenses decreased $51 million or 8%, reflecting decreased corporate marketing activities, offset in part by increased advertising of Windows.