Revenue increased $667 million or 11%, primarily due to higher revenue from server products and cloud services.
• Server products and cloud services revenue grew $680 million or 15%, driven by Azure revenue growth of 93% and server products licensed on-premises revenue growth of 6%.
• Enterprise Services revenue decreased slightly, driven by a decline in revenue from custom support agreements, offset in part by higher revenue from Premier Support Services and Microsoft Consulting Services.
Operating income increased slightly, primarily due to higher gross margin, offset by higher operating expenses. Operating income included an unfavorable foreign currency impact of 3%.
• Gross margin increased $246 million or 6%, driven by higher revenue, offset in part by higher cost of revenue. Cost of revenue increased $421 million or 25%, driven by investments to increase capacity and meet demand for the capabilities of our cloud offerings.
• Operating expenses increased $241 million or 11%, driven by investments in sales capacity, cloud engineering, and developer engagement. Sales and marketing expenses increased $139 million or 13% and research and development expenses increased $98 million or 12%.