Earnings Release FY23 Q2

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Revenue decreased $3.3 billion or 19%.

• Windows revenue decreased $1.8 billion or 27% driven by a decrease in Windows OEM. Windows OEM revenue decreased 39% on a strong prior year comparable, driven by continued PC market weakness and 3 points of negative impact from the prior year Windows 11 revenue deferral. Windows Commercial products and cloud services revenue decreased 3% driven by a decline in standalone product sales.

• Devices revenue decreased $927 million or 39% driven by continued PC market weakness and execution challenges on new product launches.

• Gaming revenue decreased $684 million or 13% driven by declines in Xbox content and services and Xbox hardware. Xbox content and services revenue decreased 12% on a strong prior year comparable impacted by first-party game launches, driven by declines in first-party content and a lower rate of monetization in third-party content, offset in part by growth in Xbox Game Pass subscriptions. Xbox hardware revenue decreased 13% driven by lower price and volume of consoles sold.

• Search and news advertising revenue increased $159 million or 5%. Search and news advertising revenue excluding traffic acquisition costs increased 10% driven by higher search volume and the Xandr acquisition, offset in part by lower revenue per search.

Operating income decreased $2.9 billion or 47%.

• Gross margin decreased $2.7 billion or 29% driven by declines in Windows and Devices. Gross margin percentage decreased driven by reductions in Devices, including the impact of impairment charges resulting from changes to our hardware portfolio, and sales mix shift to lower margin businesses.

• Operating expenses increased $198 million or 6% driven by employee severance expenses and investments in Search and news advertising, offset in part by a decline in Devices.

Revenue, gross margin, and operating income included an unfavorable foreign currency impact of 3%, 5%, and 7%, respectively. Operating expenses included a favorable foreign currency impact of 3%.

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.