Revenue decreased $2.7 billion or 10%, primarily due to the impact of a net revenue deferral related to Windows 10 of $1.7 billion and an unfavorable foreign currency impact of approximately $1.2 billion or 5%. Windows 10 revenue is primarily recognized upfront in the More Personal Computing segment, and the deferral and subsequent recognition of revenue is reflected in Corporate and Other. More Personal Computing revenue decreased, primarily due to lower revenue from Devices and Windows, offset in part by growth in Gaming and search advertising revenue. Intelligent Cloud revenue increased, primarily due to higher revenue from server products and cloud services, including Microsoft Azure, as well as higher Enterprise Services revenue.
Operating income decreased $1.8 billion or 23%, primarily due to lower gross margin, offset in part by a reduction in operating expenses in the current year, driven by a reduction in phone expenses, and impairment, integration, and restructuring expenses in the prior year. Gross margin decreased $2.4 billion or 15%, driven by the impact of a net $1.7 billion revenue deferral related to Windows 10 and an unfavorable foreign currency impact of approximately $1.0 billion or 6%. Productivity and Business Processes gross margin decreased, offset in part by higher gross margin from Intelligent Cloud.
Key changes in expenses were:
• Cost of revenue decreased $264 million or 3%, mainly due to lower phone sales, offset in part by growth in our commercial cloud and search advertising.
• Sales and marketing expenses decreased $355 million or 8%, primarily driven by a reduction in phone expenses and a favorable foreign currency impact of approximately 4%.
• Impairment, integration, and restructuring expenses were $243 million in the prior year, comprised mainly of restructuring charges associated with our July 2014 restructuring plan to simplify our organization and align the purchase of Nokia Corporation’s Devices and Services business (“NDS”) with our overall strategy (“Phone Hardware Integration Plan”).