Earnings Release FY23 Q3

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Revenue decreased $1.3 billion or 9%.

• Windows revenue decreased $741 million or 12% driven by a decrease in Windows OEM, offset in part by growth in Windows Commercial. Windows OEM revenue decreased 28% as elevated channel inventory levels continued to drive additional weakness beyond declining PC demand. Windows Commercial products and cloud services revenue increased 14% driven by strong renewal execution and an increase in agreements that carry higher in-period revenue recognition.

• Devices revenue decreased $553 million or 30% as elevated channel inventory levels continued to drive additional weakness beyond declining PC demand.

• Gaming revenue decreased $133 million or 4% driven by a decline in Xbox hardware. Xbox hardware revenue decreased 30% on a strong prior year comparable, driven by lower volume of consoles sold. Xbox content and services revenue increased 3% driven by growth in Xbox Game Pass.

• Search and news advertising revenue increased $100 million or 3%. Search and news advertising revenue excluding traffic acquisition costs increased 10% driven by higher search volume and the Xandr acquisition.

Operating income decreased $551 million or 12%.

• Gross margin decreased $705 million or 9% driven by a decline in Windows. Gross margin percentage increased slightly.

• Operating expenses decreased $154 million or 5% driven by a decline in Devices, offset in part by 3 points of growth from the Xandr acquisition.

Revenue, gross margin, and operating income included an unfavorable foreign currency impact of 2%, 4%, and 5%, respectively. Operating expenses included a favorable foreign currency impact of 2%.

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.