More Personal Computing revenue decreased $622 million or 5%, mainly due to lower revenue from Devices and Windows, offset in part by higher revenue from Gaming and search advertising. More Personal Computing revenue included an unfavorable foreign currency impact of approximately 3%.
• Devices revenue decreased $896 million or 26%, mainly due to lower phone revenue, driven by a shift in strategy for the phone business, offset in part by higher Surface revenue. Phone revenue decreased $1.2 billion or 53%, as we sold 4.5 million Lumia phones and 22.5 million other phones in the second quarter of fiscal year 2016, compared with 10.5 million and 39.7 million sold, respectively, in the prior year. Surface revenue increased $248 million or 22%, primarily driven by the release of Surface Book and Surface Pro 4 in the second quarter of fiscal year 2016, offset in part by a decline in revenue from Surface Pro 3.
• Windows revenue decreased $426 million or 8%, mainly due to lower revenue from patent licensing and Windows OEM. Patent licensing revenue decreased $161 million, due to a decline in units and patent revenue per license. Windows OEM revenue decreased $138 million or 5%, driven by declines in the business and consumer PC markets. Windows OEM Pro revenue declined 6%, driven by a decline in the business PC market. Windows OEM non-Pro revenue declined 3%, outperforming the consumer PC market, driven by a higher mix of premium licenses sold.
• Gaming revenue increased $192 million or 5%, primarily due to higher revenue from Xbox Live and video games, offset in part by lower Xbox hardware revenue. Xbox Live revenue increased 24%, driven by both higher volumes of transactions and higher revenue per transaction. Video games revenue grew 47%, driven by the Halo 5 launch in October 2015 and sales of Minecraft. We acquired Mojang AB, the Swedish video game developer of the Minecraft gaming franchise, in November 2014. Xbox hardware revenue decreased 9%, mainly due to a decline in Xbox 360 console volume. Xbox One revenue decreased slightly, due to higher console volume, offset by lower prices of consoles sold.
• Search advertising revenue, excluding traffic acquisition costs, increased $109 million or 17%, primarily driven by growth in Bing, due to higher revenue per search and higher search volume.
More Personal Computing operating income increased $532 million or 35%, primarily due to lower operating expenses.
• Gross margin decreased slightly, reflecting lower revenue, primarily as a result of lower phone sales, offset in part by a reduction in cost of revenue. Gross margin included an unfavorable foreign currency impact of approximately 6%. Cost of revenue decreased $593 million or 8%, primarily due to lower Devices cost of revenue, driven by a reduction in phone sales.
• Operating expenses decreased $561 million or 14%, mainly due to lower sales and marketing expenses and research and development expenses. Sales and marketing expenses decreased $359 million or 18%, driven by a reduction in phone expenses, partially offset by marketing expenses associated with the launch of Surface Pro 4, Surface Book, and Windows 10. Research and development expenses decreased $179 million or 11%, mainly due to a reduction in phone expenses.