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Revenue decreased $401 million or 3%.

• Windows and Devices revenue decreased slightly. Windows OEM and Devices revenue increased 1% driven by Windows OEM growth of 5% with continued benefit from Windows 10 end of support and inventory levels that remained elevated, offset in part by a decline in Devices.

• Gaming revenue decreased $623 million or 9% driven by declines in Xbox hardware and Xbox content and services. Xbox hardware revenue decreased 32% driven by lower volume of consoles sold. Xbox content and services revenue decreased 5% on a prior year comparable that benefited from strong first-party content performance.

• Search and news advertising revenue increased $254 million or 7%. Search and news advertising revenue excluding traffic acquisition costs increased 10% driven by higher search volume and continued benefit from third-party partnerships.

Operating income decreased $114 million or 3%.

• Cost of revenue decreased $523 million or 8% driven by lower hardware sales.

• Gross margin increased $122 million or 2% driven by growth in Search and news advertising and Windows OEM, offset in part by Gaming. Gross margin percentage increased driven by sales mix shift to higher margin businesses.

• Operating expenses increased $236 million or 6% driven by impairment charges in our Gaming business and research and development investments in compute capacity and AI talent.