Microsoft (MSFT) 26 Apr 182018 Q3 Earnings call transcript

Greetings and welcome to the Microsoft Fiscal Year 2018 Third Quarter Earnings Conference Call.

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mike Spencer, General Manager of Investor Relations. Thank you.

You may begin.

you us thank and afternoon for today. joining Good

General are Chief Officer; Executive the Frantz, Brod, call Amy Nadella, me with Deputy Carolyn and Financial On Officer; Secretary. Satya Hood, Accounting Officer; and Counsel Corporate Chief Frank Chief

impact Relations deck, reconciliation to On as Unless to slide as of differences today's results. find our financial of we performance growth aid with comparisons metrics is the to call remarks between that and in the to during the intended provided to and on to, corresponding and investors items you in the relate GAAP earnings measures superior financial call. specified, non-GAAP the on non-GAAP the further otherwise website, or can events a noted. All of third release press for, year, today unless the Microsoft and prepared refer provides addition financial Investor The clarifying which non-GAAP on in financial the additional summary supplement these quarter understanding otherwise should performance we measures. not items make a had the financial measures are be call prepared last included our company's accordance substitute considered period GAAP. They

growth call transcript growth following Today's our Where is We call and prepared to how immediately fluctuations. remarks to available. the performed, webcast businesses underlying of refer our live rates the complete a our the we rate constant only. being in currency provide the currency, post We'll recorded. constant rate until framework will excluding website is the growth also for are currency when assessing same foreign as effect rates available in

any included use a ask will it in the in transmission, you If the of recording. transcript and in our future be live question,

Investors' the You view transcript Relations the Microsoft can call and to the website. replay

These future release, results uncertainties. other on statements that projections the XX-Q Form reports subjects to because press call, and we with differ And statements, in comments turn do which predictions, Exchange duty other call and materially with are in Commission. the statement. and discussed assumptions of about Forms the forward-looking this factors over Satya. XX-K, statements the Actual current During expectations to could making events. during or conference are are not risks Risk and undertake our I'll and of earnings Securities section forward-looking today's will filings Factors be to update made and in that, the call We any any based

employees thanks was and steps It engagement I that tremendous serve and is phone everyone everything us. the helps realigning and upon detection of engineering AI threats. cloud backdrop, want to With a partners. already significant every where and as better took opportunity. respond and you, needs right innovation creativity, our and that the secular highlight joining. usage. quarter workplace all represents security. cloud their We and do, clear empower trends, right while era differentiated the Advanced we to intelligent leader unlock focused customers at The from teamwork that people the anomalies, ensuring modern reasons this is intelligent in with organization and of put this can a increase help and Mike, on protecting cyber for the areas to accelerate innovation, quarter, Creating innovation billions customers forefront to of solutions. of data identify edge the the delivering and It results in result entire the execution to picking Thank tools another hundreds growth of strong work the each increased cyber a over Microsoft threats. signals fuel new month a best Microsoft XXX to across technology. AI-backed our of customer key requires do culture innovation organization right their and compliance automate

We've last ATP automatic announced Intelligent and API Just week, also of to Microsoft classification well GDPR. detection are a recently built scanner Graph. capabilities, cloud remediation organizations new Compliance using Security directly Secure Simulator compliance as prepare open as Defender we capability Windows our new the new customers, and Score, and services. for into for Attack built-in value launched the for protection with Manager capability Thousands information help

enabled to with capability million. proactive in a Windows protection is organizations Teams One are in, cloud meeting Maersk Microsoft Office and their Our More use chose Cortana And active than comprehensive from increased up monthly Motors. million and than Teams. just also users, broad for Coca-Cola specific service, active of our has new Teams to to added calling we voice. year-over-year. into Teams to make innovation Stream, for devices teamwork. your consumer and XX for traction or building Teams transcription XX monthly which XX.X gain We've XX% of continues Office XXX Microsoft integrated year XXX digital AI-powered three-way reason XXX the room this new a remarks now and attribute more XXX rapidly hub customer are for markets All in usage. transformation. approach Windows the We're calls, has XXX,XXX enterprise, commercial one to capabilities, become General services commercial coding subscribers recorded video attendees. spectrum time meeting adding calling now initiate meetings. recognition enterprise using facial is devices. We've driving join meeting will into

embedded We across recognized the integration productive platform. forces demand Dynamics From hundreds growth Shifting engagement create in, wave member of of levels strong Now retaining is this as sponsored for commercial the this capabilities every business of year-over-year, engagement solutions members, one all traction levels sellers Dynamics customers the we Relationship Dynamics content innovation productivity. delivering and this sales for quarter. enabled expectations opportunity and marketing and professionals data XXX and Power We're year-over-year. to for LinkedIn for to we growth Flow business BI, and a Results to be I'll more postings has inside sessions economic We of to for across up Graph new in again and record capabilities opportunity predictive saw Solutions. growth from and and the of with unleashed about visitors ethos. relationships, applications. Microsoft high-quality we model marketing, focus third with of common networks innovation of data enable quarter and global This are the in workforce Our and sales record leverage the more little great XX% gaining job lines our for analytics cloud A PowerApps, customer model. and engine, marketing growth, transform ahead combine on AI across lead again to automate XXX improve identify our turn increased helps platform to job XX% leads. over and Talent a and investing than to while of revenue driven Office feel in LinkedIn business quarter value member-first shareholders scoring with LinkedIn driving applications. successful. business accelerate and to Microsoft of is XX% with year applications social by its are start,

third-party days data new Office within to as build go like paper applications code. custom workflows with as from XXX European digitized auto across Dynamics extend and can company, customers a platform enables versus parts Inter quickly the organization from well XXX using customers minimal Cars, power data and Now The to months. leading

in With cloud. the are the growth analytics now we business rapid Power leader of in BI, the

I'll infrastructure Now and AI turn platforms. to

Our quarter. AI affirm resonating architectural IoT such hybrid, leadership customers, security compliance Recent to CIO and surveys of as from the at a new our position the with edge in this advantage with revenue edge. productivity, stack workloads the Azure growth XX% of developer consistent and trusted cloud and is

decisions the they're made having an share overall increasing We impact, have our in market. expanding and investment an right

number zones than center most provide brings in our and provider, XX, data regions industry. resiliency Arab the cloud and other Emirates the comprehensive to Switzerland, recent Our the including of availability additional expansion, total United any the more

at HoloLens is to to continue IoT of and unlocking that connected Azure IoT in manage an across the so run of the and in fueling Azure customer indispensable becoming the partners digital accelerating also we rules floor innovating also IoT tool manufacturing, world innovation, quickly of solutions We industries, customers Stack scenarios its a chain across next technology things. take devices enhancing and and Industrial the And factory help workload Stack devices digital promise edge as hybrid Azure factories level. the on realize analyze the evolution industrial We're and silicon and see and transforming can customers twin strong and real-time. of edge, demand to is performance. cloud edge. enable for build new supply to data operators

smart and warehouse globally for Azure in is Azure Using multimodal entering are devices ABB and customer our to data we're automate exceeded its the Our factory to combines and billion In powered factory, applications the IoT each it the makes MySQL the scenarios. processes of Toyota automation. database, Sphere manufacturing to create Azure flow space. X more the well learn Cosmos just Azure AI, adoption DB, this bring that revenue. million a Handling a distributed in We're Microsoft increasing is Europe already edge of to than industrial secure estates. make and cloud market a in a cloud a to And supply the future. and chain using $XXX partnering efficiency. as of expanding for seeing rapid of Azure, than investing boundaries HoloLens operating to less And chip microcontroller-powered IoT enterprise announced database and for service source system year. design solution open best kind first year, first opportunity secure highly even to multi-model as PostgreSQL annualized Material Azure easier drones of complex push

a seeing preparation, advanced scenarios. adoption analytics Azure Databricks are learning machine rapid We for of and data

to and than Services we services than We have other already used provider. developers and democratize Cognitive more easily AI create cloud quickly X More million AI. any applications, have continue innovate to to

Our last reached XXX,XXX the the data more XXX% where parity cloud in developers, new year-over-year. or recognition in just is, a with than it's human adoption on milestone thousands Bot parity ML. addition machine comprehension. We're brings speech to object Azure to of developers also gaining human previous has learning whether their And Service and up nearly we month, Azure translation, machine edge. our in Translator AI-powered reading translation in tens language of using achievements in recognition, customers tools Microsoft traction

Build. at to share at to more inference. excited new infrastructure about for both developer and innovating cloud conference next I'm our Finally, lead month AI and in AI offerings we our are innovation with FPGA-based GPU and training

Now, to gaming.

pursue to of gaming expansive revenue continue from and performance are to how had and record and strong of levels one created way with in engagement. gaming are We games quarters distributed We our they the opportunity played the in viewed. best

Software XX% active monthly Live, users and to we services revenue to Mixer. and XX%. deepen grew retain attract, user Live and up Game relationships million, Pass across Xbox Xbox grew XX continued as

drove viewing in on services Our to One new of Sea week. addition game, and first million across Thieves, nearly like XX Mixer Xbox very in of gameplay XX its first-party Windows hours

opportunity both cloud Our results experiences. for capabilities enhancing platform and intelligent for edge in console invest our of and monetize platform, AI mobile. with And intelligent the in first-party technology. our to represents across to customers. to for and and our It with we'll ensure speak continue responsibility our and PC, games to trust developers build In third-party quickly tremendous strength services comes services cloud a a closing,

instill three trust to in working this key areas. are We

and privacy right, The consistently human first is is a recognize that acted privacy. we accordingly. We fundamental have

our Our grounded customers' success is in success.

end-to-end We XXth engineers date we'll working across and and services ensure all are hundreds towards on company privacy GDPR working with been our May the compliant. products since XXXX that implementation GDPR the architecture, have of

tools our we customers, comply will commitments to provide by For with contractual robust backed GDPR. help them

GDPR maintain costly be their to customers less than data tools develop in cloud In will host Microsoft's it fact, effective more and compliance most to GDPR-compliant themselves. and for

and response is to help are create environment by the technology defend important we In cybersecurity. leading safer bold our and signing protect accord companies a secure attacks We online step recently everyone. to first escalating led in global Accord. and the to coalition world, The customers. a a Cybersecurity Second, an the for industry more of cyber around Tech security initiative XX

cover to This the to in detect established our and Research Engineering way With includes recently we for ensure over for look detail Microsoft us results and forward. to society. to a and questions. Finally, AI an that, investments technology new ethical for Ethics hand and systems. always in I in and Microsoft AI focus rejoining outlook. financial to trust, at differentiating Amy moving we stands AI advance to our customers share and will broader and in continue I'll this And more address it be to Committee in the responsible benefit your our forward bias

and Satya, good everyone. you, Thank afternoon,

Our margin, constant at constant currency, company FX, drove Along mix, of per increased revenue than was highlighted was spend the most XX%. X benefiting XX% XX% X Gross XX% $X outperformed the and quarter Europe We constant XX% $XX.X partners across segments. leading currency. environment. healthy income strength cloud in unearned again XX% constant now gross business, Commercial slightly geographic increasing and due UK. commercial third global up our increased XX%, came commercial XX%. and billion, the of our commercial and margin, in teams service, in year-over-year growth Operating in currency. perspective, on services expected in increasing all and annuity the XX% a in performance points currency. bookings points, all revenue each quarter sizes, markets Azure. currency. constant U.S., Growth XX% expectation in by cloud growth and to XX% margin improvement Western cloud billion, and better with to we up expectations notably currency, growing $X.XX, above with sales improved XX% volume healthy constant XX% From constant saw in in with We XX% XX% IT corporate XX% a our renewals, increased gross higher at XX% Earnings Commercial in cloud share broad-based up from was positive in to across currency. new and finishing of and our

in Processes expected, of improvement segment, both with revenue than by our a cloud growth and the a Processes Azure More in expenses revenue. X currency Personal Productivity positively invest level expenses, engineering, greater of year-over-year FX in offset increased of by expected. operating FX driven cloud this and top slightly in and our accelerated up growth to and LinkedIn, from we points by XX% Computing. and X points more point and COGS Productivity we year-over-year, on X are XXX operating decline points direct focused as than and We grew and X sales spend, at Office intelligent Business impacted added point segment commercial and mix Operating Even to cloud X capacity, X% points Business more pace X intelligent line with constant continued margin growth. a drive LinkedIn. our of result investments to company commercial

commercial growth in including currency, to migration XX% size XX%, consumer overall recognition. constant a greater a XX% workloads commercial installed by growing continued expected revenue approximately than and EX commercial of in Office of Now, and XX% driven constant Productivity X% in with segment increased higher and in Office with and XX% results. by and currency, revenue and ARPU trend, a in-period constant to was our contracts customer recurring constant with the XX% Business the in the grew commercial the increasing better with revenue premium subscription base. EX. Office expansion installed this up line increasing results points in base. Office seats grew XXX XXX Revenue given XX% from driven installed Processes currency, base currency, XXX couple billion, mix revenue and Office $X quarter, grew and from digits XX% LinkedIn. again double and from expected

and constant in XX%, XX% XXX of business in revenue. XX% in Dynamics XX% currency. Dynamics and quarter, driven by $X.X growth accelerated currency, more grew XX% Our than with revenue currency, constant LinkedIn XX% constant this billion growing in

and XX% exceeding income and intelligent $X.X business. We server mix with currency, in increased revenue, margin in of gross constant percentage currency. currency. capacity significant and sales The engineering. XX% a segments, commercial cloud XX% all currency Server engagement. to grew Gross services increasing see to cloud XX% revenue constant commercial revenue. and XX% Segment levels XX%, invest XX% constant XX% grew in continued on-premises increased driven base. in increased cloud across cloud continued revenue XXX revenue dollars and with and by strategically $X.X and of currency to constant segment LinkedIn and offsetting Office constant outperformance continued margin Azure currency expectations to Operating improvements of XX% XX% expenses our in as products billion record of in Operating growth XX% the XX% in constant margin billion, on increased strong delivered due LinkedIn we in

income Azure and in grew business by demand needs, driven increased material as and resulting Our in driven currency, currency, up and constant on-premises margin in XX% growing margin our for another X% constant investment expenses in in Windows increasing and Microsoft and more uptake gross quarter XX%, gross IaaS customer declined Segment of and the Enterprise offsetting XXXX. currency, Services sales hybrid X% in with Operating premium in grew XX% continued PaaS cloud agreements custom mostly and in dollars continued constant improvement for increased X% growth mix by the constant premium XX% of Azure capacity engineering. X% than server offset gross support well margin. by Operating in currency. revenue revenue Server of percentage the increased versions. as decline support X% services constant virtualization solutions in X% Consulting Services with and currency,

better XX% and and in Surface. gaming, revenue Now quarter. $X.X PC Computing. XX%, expected Pro up constant the revenue grew OEM Personal currency, Revenue results in this More a X% of Windows commercial strong line from OEM was commercial with in significantly increased XX% results with market. to than billion, the Windows segment

We by consumer Windows declined entry-level commercial solutions. with category. strong adoption our mix as within the below mix our The price market, continued quarter range. XX, healthy, the the for remained partners. security from healthy from and of fundamentals well revenue cloud a see to agreements. were X%, continued recognition of multiyear higher Windows double a in and and products OEM PC digit in-quarter constant levels by in as and pressure XX% non-Pro growth XX% business enterprise billings base benefiting services of higher demand Inventory this this installed lower-priced increased OEM of licenses driven normal currency

year-on-year. Standard grew a XX% have transition in and significant Surface markets. currency software rate XX% international performance As XX% with Surface Windows higher reminder, the of relatively and its high on-premises quarter-to-quarter under and commercial Accounting ex Book will in and mix XX% search constant in currency the and currency constant by across to record per users driven increased grew in Xbox a and revenue. We active U.S. to XXX, engineering volume revenue against by a performance margin in XX% prior TAC by to XX% XX% relatively latest expenses due well grew constant and we as digital driven in than better the revenue due growth better Search contributed XX% and product in licensing in X% XX% revenue Xbox revenue XX% Segment user Momentum revenue. Gaming Bing revenue and Segment from variability dynamics. services continued expansion comparable end-of-lifecycle services year our from Operating and gaming, in X% portfolio constant products to with expected gross by search impacted income distribution Operating One, with and grew Xbox XX% revenue Windows to currency. increased engagement was of constant AI. and Live currency. in search and growth. monthly across to XX XX currency, gross constant as than million growth in XX% investments with title mobile margin flat line constant currency dollars XX% third-party levels software in platforms. percentage expected of as and increased

an our billings In to by for and results. recognized was growth. with plant from with from slower future Now capital XX%, of strong from total increased rate, approximately grew to billion flow up gains offerings. $X.X income plant, was company equipment Cash expenses interest, driven due and property flow dividends net a invested by support basis and line cash cloud expense. was back Free property, at and expectations, current collections a on and to $X.X and increasing paid partially expenditures million Cash cash sequential X%, offset our the of income billion. for on $XXX billion growth from equipment. used $X.X investments we interest Other operations

total year-over-year prior our pace tax a $XX billion rate $X.X to current in billion nearly amount XX% came authorization. $XX repurchases, dividends now to effective by returned billion and accelerating XX%. through benefit from credit. We Our R&D share increasing have from and tax due repurchase remaining doubled at an return quarter the shareholders buyback, We of roughly our shareholder our share

turn outlook. let's next Now to quarter's

on First FX.

by remain revenue expect by X expenses COGS FX Assuming and we to stable, X current operating increase point. X growth point rates by points,

we solid our Second, largest in business, year. strong the performance expect quarter with commercial our again of execution from

be We unearned revenue to commercial up XX% sequentially. XX% expect to

on CapEx. Third

dollar to expect on in capital globally. We growth continue accrual basis, demand see strong as we an sequential signals expenditures

representing even mix. margin commercial to another roughly quarter QX, be we year-over-year Finally, improvement gross with material expect flat Azure of revenue to cloud increasing

expect the $X.XX Processes, segments. In and billion revenue we Productivity to Now between $X.XX billion. Business and

growth revenue the customers. Intelligent Cloud, cloud $X.XX our revenue we high. differentiator hybrid as expect commercial double-digit in and driven be we expect to we teens a We as between see XXX another in quarter remain LinkedIn not by rates billion normalize in-quarter continues growth leadership billion, another as level and saw quarter revenue do $X.XX contracts cloud on expect server should Office with to of and of should products QX. recognition Dynamics the multiyear of high In services growth Dynamics same for growth,

expect billion. and Computing, like trends In continue More continued per our expect we in and QX a We to expect services Azure In $XX.X user growth the moderating we base business, total EMS. we infrastructure, our balance $XX.X our into Personal revenue in strength OEM data QX. the billion and services growth in non-Pro, Pro anticipate Across application devices reflect both Surface of TAC year. continue as we quarter to should another on revenue high Search revenue as in than growth to title our third-party see latest has our user engagement and as products it gaming, platform. teens, portfolio. transition mid-teens entire In we benefit expect to growth continue the the a QX, in the growth ex we revenue performance higher from game to rate to

between billion, COGS and from $X.X point expect of We billion $X.X FX. including growth X

expenses strong prior we income and income our earn point with We QX, portfolio and line incremental growth expect expense dividend operating support year continued place and full $X.X of growth $X.X from slightly gains range FX. equities our high in that from top continue operating billion our and for expect end In impact approximately the $XXX due the the on to other of billion, interest to FX take X expenses would expense million quarters. of above as to growth. have revenue-driven us be we we as prior to This

effective be in year. some final rate quarter to XX%, QX We in fiscal expect of volatility our with the our tax approximately

few Finally, to on XXXX. thoughts want early a I offer FY

and to teens the differentiated our cloud should growth our in macro intact. server the remain our And cloud services continued remains and strong also services. of business execution high and less revenue by improvement and drivers services. continue services to continue KPI. double-digit growth segment. the Dynamics will service environment hybrid cloud transition gross with key user within many product in will drive in Office and SaaS driven our improve, per commercial position and IaaS our Assuming Revenue consistent, percentage Productivity should every should business, in be XXX, revenue continue commercial to The improvement growth Processes XXX to consumption-based margin Business our more drive LinkedIn Azure PaaS of of

While in margin, moderate cloud Azure the we mix XXXX. continued to FY rate the gross of revenue improvement expect improvement the will commercial shift relative to overall

capital for meet services. grow expenditures to cloud to our and the continue will demand We growing investment our

LinkedIn. to we the With we've we key results and discussed, will operating ahead, the see tremendous in including business delivered continue opportunities we've in expenses growth areas see

XXXX slightly We year expect negative and we with due other FY the equity mix don't new any revenue have of rate to significant below variability income the and XX%, the to XXXX lastly, we And in with be as to the expect slightly equity be the effective versus of that, rate expect tax expenses timing full gains. And to FY go continue Q&A. of license let's tax across Mike, U.S. cloud vests. corporate quarters to to

Thanks, move instructions? Operator, over your please to you now repeat can Q&A. Amy. We'll

be gentlemen, at and Ladies the conducting we this session. time will question-and-answer

question the first your Our with is coming Heather from proceed with Goldman Please Bellini Sachs. line of question.

Amy. Great. Thank you, Satya and

other estimate you can directionally of this, I COGS Azure, profit think $X about guys CapEx helpful ramp. really give thing here to you cloud, think margin gross how particular, you revenue? for that billion in some Azure be And rough a I cloud But of gross pace mentioned nice as ballpark You we about for you we you. intelligent expansion in of depreciation? the the commercial when growth approach the in acceleration guess be margin business do And the Thank from straight with of gross comments is are a the of seeing in comes in growth. would XX what quarters now triple-digit annualized roughly know from services what us of ramp COGS percentage premium an

you, I'll the sort into Amy, maybe have numbers. of then I'll start So go and

that's each is things, happening layers. the in said And there growth of before. of Azure is One the across Heather, this I think I've

but more onboard, start some compute services workloads our data like new AI. of the higher layer new our and in Sometimes, at services in even IaaS and customers the some they with DB or scale you when higher-level Cosmos then have to Blob like sense storage,

innings think to will more on early or in continue, customer. on and attract customers We're investing that still more workloads whether side of aggressively, CapEx the the cloud transition. per So side I we're the because it's the field

higher-margin first, services that So same rest. lower-margin time. with And you inside they Azure. of will over of profile, that combine the just That's have is services course, which

think things data should high the the XXX I clear around of Dynamics be our Office services particular is as One fairly as in well XXX between in that correlation Azure. with

So that's how looking should play feel of as why give are customers it. you we think a at the for that but cloud one this

to Heather. And in there, couple I specific a there think your questions, were

commercial these you we to as cloud think think about as our best half. depreciation, services actually. And from through began it's been time over it's come of that the going roughly to margins If actually portion up of scale it get gross

of frankly, COGS, tend as even Some down the costs, percentage to in over time. fixed come a

much help So how that that roughly number. at to should depreciation is think you about

if as Now, through to services dollar dynamics in to signal. I quarter into that, product that the gross significant that into tend well. are growth that segment, about that the about said, have continue that even as we're in going reinvest seen, growth into revenue on as margin dollar sort tend a and segment significant that FY We'll KPI, now have I margin to given been of that's growth XXXX that I and in think in as you'll as in actually this QX particular continue some intelligent significant see way growth see about line top to of operating XX% cloud then it, and you've think you we'll segment. we've we server XX% currency constant basis, the that, confident segment, the think should you in and

of to about see in total continuing Azure particular, what you'll is be margins revenue a If gross percentage growth. growing the you think

and the So XXXX, what gross growth. was on see percentage services with even of pressure significant Azure, Satya improvement in, about, through some you'll gross margin segment lower that IaaS talking margin within side but in significant the with again dollar PaaS level some

you. Thank Great.

question Heather. Thanks, now, We'll take next please.

The from line is you. Please next of Thank with question coming the with question. proceed Mark your Moerdler AllianceBernstein.

there the or it? that how requirement cash that billion Thank we government demand, up a know large but Is far in about invest lift? on this the is said as don't something out or that significantly the causing data you centers ended congrats acceleration that center quarter, else build it think there equipment. follow-up, in increased you you out for you quarters? is that Or build in quarter. very property in equipment new couple the footprint significantly and much, next on CapEx of the ahead a And advance. We itself the should you corporate and driving – Thanks. data $X.X

Thanks, Mark. ago, QX change year little I a actually didn't think actually of significant trajectory was low. we from a it A what as expected. in

a sorts, especially components. we're think just on a the pops on Azure, rates across bit, number, Those signal of to not basis. really when the it basis type cloud on I I looks good pretty year-over-year think, out the So little don't it's with total Mark, actually XX% it demand but me, seeing, global growth of all a of demand at cloud for really that sequential basis, on

So I hear ago a you basis, was on a that but year-over-year on QX funny year little front. a

lot And of anything, we if the continue what there. we in there's have actual demand a capability chain sensing you. to really automation have and monitor And equipment and supply that

I data majority of advance, the center the Mark, data and in would build centers takes a is while I – that point Yeah. the cost equipment obviously in appreciate it inside. we your And do in say,

this the this is majority of And is really while servers. – so, spend

Thank you. Perfect.

can next Thanks, Mark. question? we please move to Operator,

question your Keith next coming proceed line question. The Morgan the Please with with is of Weiss from Stanley.

this the for the quarter really you, There's and Excellent. question Thank to taking across nice guys, much quarter. not pick on really board. in

be my One definitely acceleration an was to highlights in revenue LinkedIn the seems growth of from LinkedIn. the perspective what and in

Is two-parter from they Microsoft given LinkedIn, where a get from of for synergies, synergies So to that what's M&A on the better kick independent or we as in, where product a M&A in company of like to some revenue maybe come are operating the broader have One, going-forward integration? process we this are terms number of two, So just the one? distribution synergies, Microsoft we specifically see LinkedIn And basis? or are acquisition? large for an further starting appetite on number channel still bear started to that terms here. in

question. the for Keith, Thanks,

start to and can then, add me this. you Let Amy,

it that priority innovating members their all, important on everything product their keep ethos sort cultural LinkedIn our putting mean, for was behalf. to did first we of I enable very and First us of of and that is to to member as what translates that's solutions. of all that solutions, And three. you And sales and the solutions, sessions two revenue quality the obviously and their one, all talent in growth into see well ensure growth. growth, their growth, engagement across marketing

also, that year, one during We done integrations.

You Mobile. in Outlook see see it. it I Sales see Navigator and in it my day every Dynamics. I

business to obviously – Microsoft mentioned. add And clearly integrations do and users, again as and Windows XX, us those translates well members. see that's value us continue And so, engagement as LinkedIn that we to of so Dynamics revenue XXX see that growth these into both solutions the you well increasing you'll as with then will

product member-first up, yes, because of we synergies So, that's maintained throughout and ethos showing but around mostly because integration. the is up, product are of this have showing are revenue LinkedIn synergies what

team And I Keith, also job. LinkedIn done has add, a tremendous would really the

closely, where working also in appreciation Outlook seen markets unique things me let little feel urge meet our appetite when products, In to integrations I and Mobile, some see on this meaningful I and has and my Outlook actually we're do them, their I about in at think you'll the and good think for us, Mobile really and it asset, ability that's look synergy end it. important XX% them member. revenue feel for for think it's in at actually their sometimes been revenue uses and M&A, plus growth the areas the on quite front think don't it I our I of are users comes of us rate, probably inside the both expanding, I synergies of execute like they criteria that our seen quarter. both for user say, it But to when unchanged, of what how core is like it's believe to remained over look the on the that exactly and we've of a we things experience When some has is our which of a I the bit users a experience in time. would you've that is we and a at people own So how harder wouldn't our the a own where the inspiration say, the to say measure And how on with but Microsoft, lot after I a growth and and them focus frankly, means. see are execute have execute to worry year product those ability that focused and, new this companies on I development product

are key times as we Minecraft where whether many think very, And Yeah. or culturally muscle very Azure, accretive, just we I done or part revenue. of other And as we I on to building that continue are which acquisitions the it's LinkedIn that, add and do as is that's focused we've this on thing is how make on good management well that. accretive we'll think

Excellent. much guys. Thank you very

Thanks, Keith. please. question We'll the now next take

your Deutsche Please with question. Karl Keirstead Thank is question coming proceed next you. with Bank. the of line The from

like organic congrats. your congrats And Thanks. the and big achievement it over at so for on you're the a growth. for June just company and to a start, expecting scale, getting same Satya XX% That's quarter, looks team to Microsoft

I the really you Day on revenue were that to press back almost overall your left a growth question was had leverage. going the the growth this, that my to look trade-off messaging as you ago, you margin is in thinking into and guess, Analyst I big Amy, on year margin on So XXXX. not spirit I fiscal to go of Amy, when

XXXX, in to that's wondering of not way overall a assume margins? in similar and improvement is framework as So on I'm just look with that into you. growth the correct top line gross much Thank focus it we fiscal the to expect

sales I for interpretation my of in of are year are think really speaks extent that's the up all the fair team as we a Yes, believe showing picked, the we've which force, market consistency. to operating, growth both that and we've do last Karl. acquisitions investments the done, us. line assets I some built, these commentary we revenue our the this, top which made even we've Thanks, that set

quarter. this it see You

And a growth see frankly guide. your You interpretation. company, in I it is that even scale, the right the interpretation focus certainly on think our being at our

Okay. Thanks for that.

Karl. Thanks,

Let's please question. next to move the

with you. Please the next question Pritchard line question. of proceed is Thank your Walter The with from Citi. coming

how we XXXX. go Satya, of of Amy think as of about should Hi, talk Thank about the we of the into I'm you. wondering, forward maybe combination kind and and a growth view that Azure drivers

now. with of next customers the think at I services saw business I premium New over days. existing think right in as level as we we're inevitably eye-popping XXX should sort will time consumption, out this that rates How and look year? growing Office it We to early to expect we

in at this is I things I'll Azure at super with on marketplace it's each Azure the we about think us as this because growth that's and of differentiation areas what differentiation that And double scale for have. said, compete I and key very, that we qualitatively. we level and of Yeah important start down is more are importantly think high rates. point true But we as on at very

of the platform well infrastructure have as that our we quickly. push first now cloud believe some margin good which year. to Cosmos lots this time, crowd seen the database talked to of just edge of layer higher-level a for thing a Azure combination first what computing servers, hybrid time. actually never mean, Stack about you'll this side best that, I and was the a that's around as This different to I've between see databases Azure DB. seen kind are going gotten in is So the I I've It's itself scale excited The been on launched last of the about. we growth is on with very the and the a we're above product just so for for and profile. long be but growth. we'll our place continue seeing is consecutive got we services scale. I, quarters We've the inclusive of

the Dynamics is, customers things And it. in way you key way build very one on the I the the build said, architecture. continue even build about in architecturally, way build the gaming happen as what our all Azure, XXX, so the one we'll of we are can services even we're pretty we that bullish much But and And way piece. use that Office higher-level cloud way to we we see the build and

gross number Azure, specific they've your already as question never growth by the in to But terms plenty numbers on overall the for because become of that of in moderate the big, we that dollars margin of world. participate, just server we way, of which and the very total big. in markets the see old growth said, opportunity participated So will we become

think that I on product is really and through we double-digit the conversation show We're my in confident the Satya's server PBP with teens growth talked up FY really FY way in XXXX, of to that point, LinkedIn. components KPI Office that really Walter, see XXX XXXX. you And, being high in XXX, segment and Dynamics about

the saying that of components through commercial you're to business base So having On a if cloud see of Azure, you that's certainly year. a big LinkedIn. billion will scale it's as at think It speaks that growing At that But we're our as at growth, even the counting because operating, primary moderate number. very why big about the it which fast server XX% still high certainly next base growth not overall, big it's $X that you right. remain KPI a and grows. at level

revenue you some layers Satya different Azure will within see also dynamics of that the so And number. mentioned Azure.

about PaaS be growth on of If rates. I IaaS to the and think would numbers, higher you the end expect

EMS moderate to are a growth some because you it's would quickly And that Azure more expect per-seat like the within more of services business. just per-user like, the that somewhat frame,

our segments. even. That's how that actually we those to see ARPU us You Office Think be Value. add to business. of externally like Microsoft sell continue an we growth in it time able over of Internally, XXX almost it component and part will call

high the hybrid And cloud the a sort well to so to of to as teens. ability overall hopefully, context that give opportunity grow our little helps number continue as

Thank you.

We'll Walter. Thanks next please. the question take

proceed your next from of Thank Wells is you. line question Please with Fargo. Phil question. the coming with The Winslow

and you're between Hey congrats applications on if talk Satya, guys, quarter. the just sort in you enterprise thank those, and Wonder and touched about great question you how you of Dynamics, a helping growth applications applications guys of or strategically important when you the for synergies is, Azure, Azure taking you between that of how the in kind et LinkedIn potentially synergy could seeing the especially out. new level like that and two the and seeing question my businesses high applications out kind how think we're the about AI see services, cetera? on coming all are and critical or

this Yes, I that time remarks mean, platform. my in about talked one I of the this was things power

in One in Power areas fact of differentiation of real growth the as PowerApps Flow. breakout being in BI, and

finally extensibility we every own well. even for are But is thing our model. super dream interesting an has history, common out for XXX for executing model that years And is mine here including XXX. the SaaS are a been our model applications. just and it's data XX don't SaaS and probably. the application know, a the there, not same time I is first It we in own Dynamics This we in have of Microsoft for fact, the For extensibility for, Office

BI your and Power so together can run forecasting, lead really have in people So applications, system, doing, visualize can I power what estate think model sales silos or that scoring, that synergies whether some does sense, that using the bring AI analytical that start deploy lie, a your with that can AI an put that's data it's you data you prediction starts in of from you. the can that you in where because hands having building then all of some that

have workflow, it. that of So we every layer

and have We best development the tools deployment Azure. in tools

best this, BI this of top have model. common the data We On we have technology. visualization

customers your for the as I be but bear will expense your So layers, think of great But may by you're very that's incoherence sort overall these you you'll your we in is that's management having increasingly that of like some differentiated. well seeing agility individual as choices overall layers making where where in data. as And benefit best-of-breed around importantly, most what feel synergy. you're because architectural

guys. thanks Great,

Thanks.

Let's question next please. move to the

Thank line of coming Ross RBC with you. the is The Markets. Capital question MacMillan from next

on next proceed Please move question with to from Stifel. we'll Okay, the Brad your is Reback question. coming of line the with which

cycle much. Windows Amy, Windows last guys Thanks. upgrade has the very XX a strong quick OEM sense are give maybe the extraordinarily The question. of Pro quarters. penetrated Great, been in of few growth? corporate that business you and Maybe thanks the sustainability us Could you how

Brad. Thanks

word I for wouldn't Let me, is this. first, the penetration say

security devices because couple talk very an of past over of partners and devices, are about when often process. of right, think security about in of value that in they prop that Surface itself. what me product machines of real PCs buy choice, in reasons, for to we've cycle choose that demand the benefited available is, and to Windows entities years this I are upgrade or OEM and is because externality our We've two The when that pull seen of product enterprise XX, a portfolio even couple inside you enterprises, you deployment that the people Windows commercial strong deployment see When often compelling. that make the a incredibly those upgrades you're for think components, and seen Let us. for good inside it's

certainly also a base is overall good, installed actually as I on that gotten done The partners had quite have economy terrific the older. think our job and well.

process at whereby QX a PC very you're performance. so that to of to move got those modern both secure infrastructure for seeing a you're great there's factors. has is strong product, environment. modern And confluence certainly, continues customers that a you've And in be I who there's as result, the really events, see to and to macro And guide A all can want good what very with imply its very strong Pro starting a think to core, a infrastructure. market through

Great. Thanks very much.

now, please. take We'll Thanks, next Brad. question

Thank you.

And or LLC coming you Amy, help the Suisse. you gaming taking context And for strong my Credit exceeded in margin can in growth question. understand that from your the Nemeroff give the expectations? revenue a Amy, could continued the could gaming that be Satya is with of gaming? sense you us line helpful. Nemeroff Thank MPC question Suisse profile large of us also the Securities please guide the with and next much. very of areas - Credit of (USA) on well, of proceed comment outperformance Our the margin Michael for Michael if of Thanks the margin would Please as strength you question.

and start then, can I Yeah, yeah.

don't Why you start.

helps Because even much on as strategy across all growth which us as gaming, talk some like very the well our the how we of investments of opportunity sort our about articulate gotten segments, various a of really we've both layers. commercial

So is, engagement the is highest itself the console marketplace. in out the console first

is anytime Xbox a the benefits new third-party So fact engagement releases, where first-party that or the game, driven us. whether best is it's

additional these Mixer, now there it's Xbox or as area they are platforms. So us. that's whether have, whether games games don't it's a on play Pass all to platform great really as for a different gamer watch growth or more Game owner, But we stop because serve opportunities we Live, the

already But So think the is which opportunity. developers, means we've it that's PaaS something Azure paying one, growth is the game dividends its directly side, on what for and Azure taken any PlayFab and speaks is of is building that. one big titles it to as the of to acquisition and the knowledge ours a first-party which new I build other these service the of last all in

all see Azure. increasingly as levers have said, are MPC it, the you'll various over in it those see So we the in on you'll even gaming. I And time segment and

you little increase And I question is the I'm MPC if guide to think, simply gaming. I because your in don't the Michael, expand a bit, mind, don't think going

Then bit QX. comparable And a Brad's nature Thank platform result about That's think, what vibrant in on performance me helpful. the that as inside that, the The we the very - say OEM would higher we gave all added. and we've with We're commercial, expecting expect move when about next in terrific sort is and and into in for value very very double-digit piece quite But the a been that There'll strong quarter, temporal to QX. expect and in quarters. it see a to to grower. selling much LLC LTE the high to component the talking guidance been come reception QX Satya's that's a expecting going a security them. than continuation there's a hit be they for a has that that in question. base even having of strong is QX I is like software components ones Satya large been Nemeroff a more it want Surface let QX really also and Pro number I seen X Michael may that of talk QX Book you So double-digit gaming performance is as double-digit was in shows is the games expect a the much. still back anything difficult is of grower. example, saw which the part are of consistent number terms it ones, component, I where in a sustainable that talking Suisse of some get the else. enterprise it us about, actually with (USA) will reasons have Surface which to volatility this well. specifically in to to annuity-like of growth more Part and and value what Xbox business was as which in continue. of of in Credit really the bit a to basis, as Windows you will very is just the business I Surface would see little that be did the device. we're that billings has fans believe even again The you gets be reflect bit strong a our a as QX third-party there there. far you and to for rate. QX growth of Securities more impact And continue I It teens The well clear, Pro That services good. with few of us uplift a that places

help? great. So Thanks. did that Okay,

to move the We'll Michael. please. Thanks, question, next

from next The is question MacMillan line Markets. your proceed Ross the you. RBC Thank question. with Please of with Capital

much. is time. the clear line this Hopefully, Thanks so

mix, striking guess, about this QX the which ask you strength were talked products SQL was growth But given quarter, is broad-based market share you a et of you is within was there comp. database And, I products now the as in cetera? the the number two Satya, Server, the that if have bias space? terms you of data fiscal strength? any was curious, multi-model though the leadership to just mentioned and of help I that hybrid striking of you will, Satya Or sort you really, wanted And Center, kind have. that do So strength to in server Amy, in market to testament strength I you what's can take and me about of Server, think management in server database and across then, driving System And Cosmos Amy, that questions well. is Thanks. all Windows the DB expected into that,

take mean, second the one. I'll I Yeah.

remarks, server which yes, to be both the it AI era. the AI question, capability a DB's Amy there, growth I else trends this her are I think even we do and data is the tremendous said, in have multiple a combination opportunity, that's think in layer, that, as because, data I layer, I infrastructure we and mostly to Cosmos everything referenced I And in previous for mean, era with layer where continues pretty lies. of think a But virtualization the products. opportunity there still example, your is here, driver first unique

servers. cybersecurity The in server driver the of products is and other our growth security value

a So hybrid that's The now think SQL SQL about when one. and, that it's itself, product. fact you have we example, for

have store with that and R to You product AI situ, procedures the actually can database. is right tier allows an Python you in databases database SQL write cloud. SQL in one we the because your

lot hybrid example, talk up a as then is. in a And will driver when of wherever factory. saying, to factory, always I they're the there well. for somebody's and data, we are So, if choices, in sensors data factory what data the up. a manage Stack where data close have And shows we AI where building across And is and deploy Azure the growth about there smart the now go because there that's looking computation is and of millions relational the server databases shows that to

number cloud combination. in of essentially drivers the and is multiple server what So

the across the point also And even Satya's have drivers with well, two component, me within largest sustaining. particular, been which SQL, in your the portfolio. to more And that into but of let it's Windows products comment break sort our on both are component, on-prem comparable server obviously actually doing

The first exactly with hybrid demand.

choices, confidence committed hybrid, it a is transition servers their to to period We and agreement, have our on-prem that really their of really Azure What a called about to cloud their timelines their customers Hybrid does buying over their Benefits. is something confidence. provide

same right, uplift in a And benefits them to so, Azure price. or transition with those lets easily that SQL small with between in it Windows

has a been think that I component. core actually

center bit. do virtualization mix another was second the data or one, up drive a premium modernization, The move one the

it down in types seeing So the things, you we're that's, that things of into break sustaining those two wanted to if number. are more

this will last be And our question. Thanks. Great.

you. Thank

proceed Our final line Kash question Rangan from Merrill with is coming the Lynch. Please your America of with Bank question. of

Last Thank me question for in. one; the you, getting question guys long. longest really, for will you really Satya. be A

understand, digitization. growth help is we've meet theme Microsoft's especially you hearing Can theme CEOs, recurring As CEOs other rate growth GDP accelerating that from large rate software to whereas us you the that rate. given companies, of a been this the of company the is GDP with growth is

is spending IT a So company spending revenue percentage or average obviously, tech or as of higher. going GDP

digital products wherever and are you. of X, services likely what to what where of comprise is when initiatives incremental companies spend perspective, more? that the phase which go can your is given that X, the And them X help comes over the us, phase what IT maybe kinds that us pretty help today are with IT that or unique, like baseline digitization swing factor transformation, So phase versus and you what processes? been upcoming understand of Thank to we're in, and operating are business today likely you we've the to of business new sell is it baseline

we think digital what I to mean, talk talk I CEOs, CDOs, when have four Yeah, and about transformational you, customers we outcomes.

DB achieve about on, across I to ingredients transformation customers. how everything Cosmos their they engage our areas customers for Cosmos digital fact, variety we it. to a growth, that objectives solution products best helping be able DB example, the of do our happens one your do customers the be want that to are In of example around talked That's one different sources. to capture all gone from database signals When of you

mean, of CEO they become collaborate. your so do right around can the that increasingly their best empowering the very a I products for own has The make every and second piece work sure priority that the that tools, their right is is of course employees. to in employees things front of now one number one are

of teams modernizing grow. companies how workforce So Microsoft their with XXX. things a There's like great are example

you project, one somebody that's XXX something growth, using classic every as is taking Azure fix ends then sense the see service so let up field says, efficiency. The project, third Dynamics way growth When it IoT operational me a something, a IoT service. or field actually predict and

transformational a well changing that's where models. positioned. business people we're outcome lastly, their And very are So

You take Nalco a somebody Water. like

put them a they're words, to sensors other deliver their model differentiated a now company, water that In say very could service business water they allow customers. they're but actually to pure You company.

And the transformational technology both see. and transformation to best well needs. we're the capacity also capability frontline we but outcomes the that's partner with capability, service digital so sales at address with And our we feel, Microsoft, positioned

to are these the IoT, HCM, growth. your predominant Very that going CRM, themes be you like useful, seems insightful. It Thank driving ERP, very Wonderful. much. are

look all That wraps today's Thank with and soon. we the up to of speaking of portion us, joining Kash. call. you earnings for forward Thanks, Q&A you

details You can Investor additional website. Relations find Microsoft at the

everyone. Thanks,

everyone. you, Thank

participation, gentlemen, this at teleconference. this today's you disconnect Again, time. we lines your may thank conclude does for and you Ladies and your