Earnings Release FY22 Q1

More Personal Computing

Revenue increased $1.5 billion or 12%.

• Windows revenue increased $525 million or 10% driven by growth in Windows OEM and Windows Commercial. Windows OEM revenue increased 10%, including 7 points of negative impact from the Windows 11 revenue deferral, driven by growth in the PC market, particularly in commercial with higher revenue per license. Windows Commercial products and cloud services revenue increased 12% driven by demand for Microsoft 365.

• Search and news advertising revenue increased $713 million or 37%. Search and news advertising revenue excluding traffic acquisition costs increased 40% driven by higher revenue per search, on a low prior year comparable.

• Gaming revenue increased $501 million or 16% driven by growth in Xbox hardware. Xbox hardware revenue increased 166% driven by higher volume and price of consoles sold due to continued demand for Xbox Series X|S, on a low prior year comparable impacted by a slowdown in volume of consoles sold ahead of Xbox Series X|S launches. Xbox content and services revenue increased 2% driven by growth in Xbox Game Pass subscriptions and first-party titles, offset in part by a decline in third-party titles, on a strong prior year comparable that benefitted from stay-at-home scenarios.

• Surface revenue decreased $267 million or 17% on a strong prior year comparable.

Operating income increased $347 million or 7%.

• Gross margin increased $718 million or 10% driven by growth in Windows and Search and news advertising. Gross margin percentage decreased driven by sales mix shift to Gaming hardware.

• Operating expenses increased $371 million or 15% driven by investments in Gaming as well as Windows marketing.

Gross margin and operating income both included a favorable foreign currency impact of 2%.

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