Windows Division revenue growth is directly impacted by growth of PC purchases from OEMs that pre-install versions of Windows operating systems because the OEM channel accounts for approximately 80% of total Windows Division revenue, including the revenue deferred through the Windows 7 Deferral. The differences between unit growth rates and revenue growth rates from year to year primarily result from changes in the mix of OEM Windows premium edition operating systems licensed as a percentage of total OEM Windows operating systems licensed ("OEM premium mix"). Additional differences in growth rates result from the impact of lower cost netbook PCs, which are sold with a lower cost version of Windows, changes in geographic mix, and changes in the channel mix of products sold by large, multi-national OEMs versus those sold by local and regional system builders. Windows Live primarily generates revenue from online advertising.

Windows Division revenue decreased primarily as a result of the deferral of approximately $1.5 billion of revenue related to the Windows 7 Upgrade Option and sales of Windows 7 to OEMs and retailers before general availability in the second quarter of fiscal year 2010. Including revenue and units associated with the Windows 7 Deferral, OEM revenue decreased $207 million or 6%, while OEM license units increased 6%. The decline in OEM revenue reflected the 8 percentage point decrease in the OEM premium mix to 63%, primarily driven by growth of licenses related to sales of netbook PCs, a decline in premium editions sold to business customers, and changes in geographic mix. Based on our estimates, total worldwide PC shipments from all sources grew approximately 0% to 2% through growth in both emerging and developed markets.

Windows Division operating income decreased as a result of decreased revenue and increased cost of revenue, while other operating expenses declined year over year. Cost of revenue increased $40 million or 13%, primarily driven by increased traffic acquisition costs and other product costs. Research and development expenses decreased $47 million or 14%, primarily as a result of capitalization of certain Windows 7 software development costs and completion of product development of Windows 7. Sales and marketing expenses decreased $41 million or 8%, primarily reflecting decreased advertising and marketing campaigns.