Earnings Release FY21 Q1

Performance

Revenue increased $4.1 billion or 12%, 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 Commercial and LinkedIn. More Personal Computing revenue increased, driven by Gaming and Surface, offset in part by a reduction in Search advertising.

Gross margin increased $3.5 billion or 15%, driven by growth across each of our segments and a reduction in depreciation expense due to the change in estimated useful lives of our server and network equipment. Gross margin percentage increased, driven by the change in estimated useful lives of our server and network equipment. Commercial cloud gross margin percentage increased 5 points to 71%, driven by the change in estimated useful lives of our server and network equipment. Excluding this impact, gross margin percentage increased slightly, driven by gross margin percentage improvement in Azure, offset in part by sales mix shift to Azure.

Operating income increased $3.2 billion or 25%, driven by growth across each of our segments and the change in estimated useful lives of our server and network equipment.

Key changes in expenses were:

• Cost of revenue increased $596 million or 6%, primarily driven by growth in commercial cloud, offset in part by the change in estimated useful lives of our server and network equipment.

• Research and development expenses increased $361 million or 8%, driven by investments in cloud engineering.

• Sales and marketing expenses decreased $106 million or 2%, primarily driven by reductions in advertising, offset in part by investments in commercial sales.

• General and administrative expenses increased $58 million or 5%, driven by an increase in business taxes.

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.