Earnings Release FY20 Q3

Performance

Revenue increased $4.5 billion or 15%, driven by growth across each of our segments. Intelligent Cloud revenue increased, driven by server products and cloud services. Productivity and Business Processes revenue increased, driven by Office and LinkedIn. More Personal Computing revenue increased, driven by Windows.

Gross margin increased $3.6 billion or 18%, driven by growth across each of our segments. Gross margin percentage increased, driven by sales mix shift to higher margin businesses. Commercial cloud gross margin percentage increased 4 points to 67%, primarily driven by improvement in Azure.

Operating income increased $2.6 billion or 25%, driven by growth across each of our segments.

Key changes in expenses were:

• Cost of revenue increased $805 million or 8%, driven by growth in commercial cloud.

• Research and development expenses increased $571 million or 13%, driven by investments in cloud engineering and LinkedIn.

• Sales and marketing expenses increased $346 million or 8%, driven by investments in LinkedIn and commercial sales, as well as an increase in bad debt expense.

• General and administrative expenses increased $94 million or 8%.

Gross margin and operating income included an unfavorable foreign currency impact of 2% and 3%, respectively.

IMPORTANT NOTICE TO USERS (summary only, click here for full text of notice); All information is unaudited unless otherwise noted or accompanied by an audit opinion and is subject to the more comprehensive information contained in our SEC reports and filings. We do not endorse third-party information. All information speaks as of the last fiscal quarter or year for which we have filed a Form 10-K or 10-Q, or for historical information the date or period expressly indicated in or with such information. We undertake no duty to update the information. Forward-looking statements are subject to risks and uncertainties described in our Forms 10-Q and 10-K.