Earnings Release FY20 Q1

Performance

Revenue increased $4.0 billion or 14%, 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 $3.5 billion or 18%, driven by growth across each of our segments. Gross margin percentage increased, due to gross margin percentage improvement in More Personal Computing and Productivity and Business Processes. Gross margin included a 4 percentage point improvement in commercial cloud, primarily from Azure.

Operating income increased $2.7 billion or 27%, driven by growth across each of our segments.

Key changes in expenses were:

• Cost of revenue increased $501 million or 5%, driven by growth in commercial cloud, offset in part by a decline in Gaming.

• Research and development expenses increased $588 million or 15%, driven by investments in cloud and artificial intelligence (“AI”) engineering, Gaming, GitHub, and LinkedIn.

• Sales and marketing expenses increased $239 million or 6%, driven by investments in LinkedIn, GitHub, and revenue-driven operating expenses.

• General and administrative expenses decreased $88 million or 8%.

Gross margin and operating income included an unfavorable foreign currency impact of 2% and 5%, 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.