FY26 Q1 - More Personal Computing Performance - Investor Relations

Earnings Release FY26 Q1

More Personal Computing

Revenue increased $580 million or 4%.

• Windows and Devices revenue increased $222 million or 5%. Windows OEM and Devices revenue increased 6% driven by Windows OEM growth of 18% with demand ahead of Windows 10 end of support and inventory levels that remained elevated, offset in part by a decline in Devices.

• Gaming revenue decreased $113 million or 2% driven by a decline in Xbox hardware, offset in part by growth in Xbox content and services. Xbox hardware revenue decreased 29% driven by lower volume of consoles sold. Xbox content and services revenue increased 1% on a strong prior year comparable with growth in Xbox Game Pass and third-party content, offset in part by a decline in first-party content.

• Search and news advertising revenue increased $472 million or 15%. Search and news advertising revenue excluding traffic acquisition costs increased 16% driven by higher search volume and continued benefit from third-party partnerships.

Operating income increased $630 million or 18%.

• Cost of revenue decreased $183 million or 3% driven by lower hardware sales, offset in part by growth in Search and news advertising.

• Gross margin increased $763 million or 11% driven by growth in Windows OEM and Search and news advertising. Gross margin percentage increased driven by sales mix shift to higher margin businesses.

• Operating expenses increased $133 million or 4% driven by investments in AI talent and compute capacity to support product development that benefits the entire portfolio.

Operating income 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.