Q2 2023 Microsoft Corp Earnings Call

January 24, 2023

Speaker 1: Greetings, and welcome to the Microsoft Fiscal Year 2023 Second Quarter Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Brett Iversen, Vice President, Investor Relations. Greetings, and welcome to the Microsoft Fiscal Year 2023 Second Quarter Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Brett Iversen, Vice President, Investor Relations. Greetings, and welcome to the Microsoft Fiscal Year 2023 Second Quarter Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Brett Iversen, Vice President, Investor Relations.

Speaker 1: Good afternoon, and thank you for joining us today. On the call with me are Satya Nadella, Chairman and Chief Executive Officer; Amy Hood, Chief Financial Officer; Alice Jolla, Chief Accounting Officer; and Keith Dolliver, Deputy General Counsel. On the Microsoft Investor Relations website, you can find our earnings press release and financial summary slide deck, which is intended to supplement our prepared remarks during today's call and provides the reconciliation of differences between GAAP and non-GAAP financial measures.

Speaker 1: Greetings, and welcome to the Microsoft Fiscal Year 2023 Second Quarter Earnings Conference.

Speaker 2: As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Brett Iverson, Vice President, Investor Relations. Good afternoon, and thank you for joining us today. On the call with me are Satya Nadella, Chairman and Chief Executive Officer, Amy Hood, Chief Financial Officer, Alice Jala, Chief Accounting Officer, and Keith D'Olivere, Deputy General Counsel. On the Microsoft Investor Relations website, you can find our Earnings Press Release and Financial Summary slide deck, which is intended to supplement our prepared remarks during today's call and provides the reconciliation of differences between GAAP and non-GAAP financial measures. On this call, we will discuss certain non-GAAP items. The non-GAAP financial measures provided should not be considered as a substitute for or superior to the measures of financial performance prepared in accordance with GAAP. They are included as additional clarifying items to aid investors in further understanding the company's second-quarter performance in addition to the impact these items and events have on the financial results. All growth comparisons we make on the call today relate to the corresponding period of last year, unless otherwise noted. We will also provide growth rates in constant currency when available as a framework for assessing how our underlying business is performed, excluding the effect of foreign currency rate fluctuations. If our growth rates are the same in constant currency, we will refer to the growth rate only. We will post our prepared remarks to our website and immediately following the call until the complete transcript is available. Today's call is being webcast live and recorded. If you ask a question, it will be included in our live transmission, in the transcript, and in any future use of the recording. You can replay the call and view the transcript on the Microsoft Investor Relations website.

Speaker 2: On this call, we will discuss certain non-GAAP items. However, the non-GAAP financial measures provided should not be considered as a substitute for or superior to the measures of financial performance prepared in accordance with GAAP. They are included as additional clarifying items to aid investors in further understanding the company's second quarter performance in addition to the impact these items and events have on the financial results. All growth comparisons we make on the call today relate to the corresponding period of last year unless otherwise noted. On this call, we will discuss certain non-GAAP items. However, the non-GAAP financial measures provided should not be considered as a substitute for or superior to the measures of financial performance prepared in accordance with GAAP.

Speaker 2: They are included as additional clarifying items to aid investors in further understanding the company's second quarter performance in addition to the impact these items and events have on the financial results. All growth comparisons we make on the call today relate to the corresponding period of last year unless otherwise noted. We will also provide growth rates in constant currency, when available, as a framework for assessing how our underlying businesses performed, excluding the effect of foreign currency rate fluctuations. Where growth rates are the same in constant currency, we'll refer to the growth rate only. We will post our prepared remarks on our website immediately following the call until the complete transcript is available.

Speaker 2: We will also provide growth rates in constant currency when available as a framework for assessing how our underlying businesses performed, excluding the effect of foreign currency rate fluctuations. Where growth rates are the same in constant currency, we'll refer to the growth rate only. We will post our prepared remarks to our website immediately following the call until the complete transcript is available. We will also provide growth rates in constant currency, when available, as a framework for assessing how our underlying businesses performed, excluding the effect of foreign currency rate fluctuations. Where growth rates are the same in constant currency, we'll refer to the growth rate only.

Speaker 2: On this call, we will discuss certain non-GAAP items. However, the non-GAAP financial measures provided should not be considered as a substitute for or superior to the measures of financial performance prepared in accordance with GAAP. They are included as additional clarifying items to aid investors in further understanding the company's second-quarter performance in addition to the impact these items and events have on the financial results. All growth comparisons we make on the call today relate to the corresponding period of last year, unless otherwise noted. We will also provide growth rates in constant currency when available as a framework for assessing how our underlying business is performing, excluding the effect of foreign currency rate fluctuations.

Speaker 2: We will also provide growth rates in constant currency, when available, as a framework for assessing how our underlying businesses performed, excluding the effect of foreign currency rate fluctuations. Where growth rates are the same in constant currency, we'll refer to the growth rate only. We will post our prepared remarks to our website immediately following the call until the complete transcript is available. We will also provide growth rates in constant currency when available as a framework for assessing how our underlying businesses performed, excluding the effect of foreign currency rate fluctuations. Where growth rates are the same in constant currency, we'll refer to the growth rate only.

Speaker 2: We will post our prepared remarks to our website immediately following the call until the complete transcript is available. We will also provide growth rates in constant currency, when available, as a framework for assessing how our underlying businesses performed, excluding the effect of foreign currency rate fluctuations. Where growth rates are the same in constant currency, we'll refer to the growth rate only. We will post our prepared remarks on our website immediately following the call until the complete transcript is available.

Speaker 2: We will post our prepared remarks to our website immediately following the call until the complete transcript is available. Today's call is being webcast live and recorded. If you ask a question, it will be included in our live transmission, in the transcript, and in any future use of the recording. You can replay the call and view the transcript on the Microsoft Investor Relations website. Today's call is being webcast live and recorded. If you ask a question, it will be included in our live transmission, in the transcript, and in any future use of the recording. You can replay the call and view the transcript on the Microsoft Investor Relations website. Today's call is being webcast live and recorded. If you ask a question, it will be included in our live transmission, in the transcript, and in any future use of the recording. You can replay the call and view the transcript on the Microsoft Investor Relations website.

Speaker 2: If our growth rates are the same in constant currency, we will refer to the growth rate only. We will post our prepared remarks on our website immediately following the call until the complete transcript is available. Today's call is being webcast live and recorded. If you ask a question, it will be included in our live transmission, in the transcript, and in any future use of the recording. You can replay the call and view the transcript on the Microsoft Investor Relations website.

Speaker 2: Today's call is being webcast live and recorded. If you ask a question, it will be included in our live transmission, in the transcript, and in any future use of the recording. You can replay the call and view the transcript on the Microsoft Investor Relations website. Today's call is being webcast live and recorded. If you ask a question, it will be included in our live transmission, in the transcript, and in any future use of the recording. You can replay the call and view the transcript on the Microsoft Investor Relations website.

Speaker 3: During this call, we will be making forward-looking statements, which are predictions, projections, or other statements about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could materially differ because of factors discussed in today's earnings press release and the comments made during this conference call. During this call, we will be making forward-looking statements, which are predictions, projections, or other statements about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could materially differ because of factors discussed in today's earnings press release, in the comments made during this conference call, and in the Risk Factors section of our Form 10-K, Forms 10-Q, and other reports and filings with the Securities and Exchange Commission.

Speaker 3: During this call, we'll be making forward-looking statements, which are predictions, projections, or other statements about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could materially differ because of factors discussed in today's earnings press release, in the comments made during this conference call, and in the Risk Factors section of our Form 10-K, Forms 10-Q, and other reports and filings with the Securities and Exchange Commission. We do not undertake any duty to update any forward-looking statement. And with that, I'll turn the call over to Satya.

Speaker 3: And with that, I'll turn the call over to Satya. During this call, we'll be making forward-looking statements, which are predictions, projections, or other statements about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could materially differ because of factors discussed in today's earnings press release, in the comments made during this conference call, and in the Risk Factors section of our Form 10-K, Forms 10-Q, and other reports and filings with the Securities and Exchange Commission. We do not undertake any duty to update any forward-looking statement. And with that, I'll turn the call over to Satya.

Speaker 4: and in the Risk Factors section of our Form 10-K, Forms 10-Q, and other reports and filings with the Securities and Exchange Commission.

Speaker 5: We do not undertake any duty to update any forward-looking statements. And with that, I'll turn the call over to Satya.

Speaker 6: Thank you very much, Brett. I want to start with the context I shared with our employees last week regarding the changing environment and our priorities.

Speaker 7: As I meet with customers and partners, a few things are increasingly clear. Just as we saw customers accelerate their digital spending during the pandemic, we are now seeing them optimize that spending. Also, organizations are exercising caution due to macroeconomic uncertainty. And the next major wave of computing is emerging as we enter the world's most advanced world. Thank you very much, Brett. I want to start with the context I shared with our employees last week about the changing environment and our priorities.

Speaker 7: As I meet with customers and partners, a few things are increasingly clear. Just as we saw customers accelerate their digital spending during the pandemic, we are now seeing them optimize that spending. Also, organizations are exercising caution due to the macroeconomic uncertainty. And the next major wave of computing is emerging as we turn the world's most advanced world.

Speaker 7: Thank you very much, Brett. I want to start with the context I shared with our employees last week about the changing environment and our priorities. As I meet with customers and partners, a few things are increasingly clear. Just as we saw customers accelerate their digital spend during the pandemic, we are now seeing them optimize that spend. Also, organizations are exercising caution given the macroeconomic uncertainty. And the next major wave of computing is being born as we turn the world's most advanced AI models into a new computing platform. Thank you very much, Brett. I want to start with the context I shared with our employees last week about the changing environment and our priorities.

Speaker 7: As I meet with customers and partners, a few things are increasingly clear. Just as we saw customers accelerate their digital spend during the pandemic, we are now seeing them optimize that spend. Also, organizations are exercising caution given the macroeconomic uncertainty. And the next major wave of computing is being born as we turn the world's most advanced AI models into a new computing platform. Thank you very much, Brett. I want to start with the context I shared with our employees last week about the changing environment and our priorities. As I meet with customers and partners, a few things are becoming increasingly clear.

Speaker 7: Just as we saw customers accelerate their digital spend during the pandemic, we are now seeing them optimize that spend. Additionally, organizations are exercising caution given the macroeconomic uncertainty. And the next major wave of computing is being born as we turn the world's most advanced AI models into a new computing platform.

Speaker 8: while internally aligning our own cost structure with our revenue growth.

Speaker 9: This, in turn, sets us up to participate in the secular trend where digital spending as a percentage of GDP is only going to increase.

Speaker 8: while internally aligning our own cost structure with our revenue growth.

Speaker 9: This in turn sets us up to participate in the secular trend, where digital spending as a percentage of GDP is only going to increase.

Speaker 10: And lastly, we're going to lead in the AI era, knowing that maximum enterprise value is created during platform shifts. In this environment, we remain focused on 3 things. This is an important time for Microsoft to work with our customers, helping them realize more value from their tech spend and building long-term loyalty and share position while internally aligning our own cost structure with our revenue growth. This, in turn, sets us up to participate in the secular trend where digital spend as a percentage of GDP is only going to increase. And lastly, we're going to lead in the AI era, knowing that maximum enterprise value gets created during platform shifts.

Speaker 10: In this environment, we remain convicted on 3 things. This is an important time for Microsoft to work with our customers, helping them realize more value from their tech spend and building long-term loyalty and share position while internally aligning our own cost structure with our revenue growth. This, in turn, sets us up to participate in the secular trend where digital spend as a percentage of GDP is only going to increase. And lastly, we're going to lead in the AI era, knowing that maximum enterprise value gets created during platform shifts.

Speaker 10: In this environment, we remain convicted on 3 things: this is an important time for Microsoft to work with our customers, helping them realize more value from their tech spend and building long-term loyalty and share position while internally aligning our own cost structure with our revenue growth. This, in turn, sets us up to participate in the secular trend where digital spend as a percentage of GDP is only going to increase. And lastly, we're going to lead in the AI era, knowing that maximum enterprise value gets created during platform shifts.

Speaker 10: And lastly, we're going to lead in the AI era, knowing that maximum enterprise value gets created during platform shifts. In this environment, we remain convicted on 3 things: this is an important time for Microsoft to work with our customers, helping them realize more value from their tech spend and building long-term loyalty and share position while internally aligning our own cost structure with our revenue growth. This, in turn, sets us up to participate in the secular trend where digital spend as a percentage of GDP is only going to increase. And lastly, we're going to lead in the AI era, knowing that maximum enterprise value gets created during platform shifts.

Host: Thank you for watching! Greetings and welcome to the Microsoft Fiscal Year 2023 Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode.

Speaker 10: And lastly, we're going to lead in the AI era, knowing that maximum enterprise value is created during platform shifts.

Speaker 11: With that as the backdrop, Microsoft's cloud exceeded $27 billion in quarterly revenue, up 22% and 29% in constant currency.

Speaker 11: With that as the backdrop, the Microsoft cloud exceeded $27 billion in quarterly revenue, up 22% and 29% in constant currency.

Speaker 12: Now, I'll highlight examples of our innovation, starting with Azure.

Speaker 13: Moving to the cloud is the best way for any customer in today's economy to mitigate demand uncertainty and energy costs while gaining the efficiencies of cloud-native development.

Speaker 12: Now, I'll highlight examples of our innovation, starting with Azure.

Host: A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your cell phone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Brett Iverson, Vice President, Investor Relations. Good afternoon, and thank you for joining us today.

Speaker 13: Moving to the cloud is the best way for any customer in today's economy to mitigate demand uncertainty and energy costs while gaining the efficiencies of cloud-native development.

Speaker 14: Enterprises have moved millions of cores to Azure and run twice as many cores on our cloud today than they did two years ago. And yet, we're still in the early innings when it comes to long-term cloud opportunities. As an example, insurer AIA was able to save more than 20% by migrating to Azure and reduced IT provisioning time from multiple months to just one year. With that as a backdrop, Microsoft Cloud exceeded $27 billion in quarterly revenue, up 22% and 29% in constant currency. Now I'll highlight examples of our innovation, starting with Azure. Moving to the cloud is the best way for any customer in today's economy to mitigate demand uncertainty and energy costs while gaining efficiencies of cloud native development. Enterprises have moved millions of calls to Azure and run twice as many calls on our cloud today than they did 2 years ago. But, we're still in the early innings when it comes to long-term cloud opportunities.

Speaker 14: With that as a backdrop, the Microsoft Cloud exceeded $27 billion in quarterly revenue, up 22% and 29% in constant currency. Now, I'll highlight examples of our innovation, starting with Azure. Moving to the cloud is the best way for any customer in today's economy to mitigate demand uncertainty and energy costs while gaining the efficiencies of cloud native development. Enterprises have moved millions of calls to Azure and run twice as many calls on our cloud today than they did 2 years ago. And yet, we're still in the early innings when it comes to long-term cloud opportunities.

Speaker 14: With that as a backdrop, the Microsoft Cloud exceeded $27 billion in quarterly revenue, up 22% and 29% in constant currency. Now, I'll highlight examples of our innovation, starting with Azure. Moving to the cloud is the best way for any customer in today's economy to mitigate demand uncertainty and energy costs while gaining the efficiencies of cloud native development. Enterprises have moved millions of cases to Azure and run twice as many calls on our cloud today than they did 2 years ago. And yet, we're still in the early innings when it comes to long-term cloud opportunities.

Speaker 14: Now I'll highlight examples of our innovation, starting with Azure. Moving to the cloud is the best way for any customer in today's economy to mitigate demand uncertainty and energy costs while gaining efficiencies of cloud native development. Enterprises have moved millions of calls to Azure and run twice as many calls on our cloud today than they did 2 years ago. But, we're still in the early innings when it comes to long-term cloud opportunities. With that as a backdrop, the Microsoft Cloud exceeded $27 billion in quarterly revenue, up 22% and 29% in constant currency. Now, I'll highlight examples of our innovation, starting with Azure.

On the call with me are Satya Nadella, Chairman and Chief Executive Officer, Amy Hood, Chief Financial Officer, Alice Jala, Chief Accounting Officer, and Keith Dolliver, Deputy General Counsel. On the Microsoft Investor Relations website, you can find our earnings press release and financial summary slide deck, which is intended to supplement our prepared remarks during today's call and provides the reconciliation of differences between GAAP and non-GAAP financial measures. On this call, we'll discuss certain non-GAAP items. However, the non-GAAP financial measures provided should not be considered as a substitute for or superior to the measures of financial performance prepared in accordance with GAAP.

Speaker 14: Moving to the cloud is the best way for any customer in today's economy to mitigate demand uncertainty and energy costs while gaining the efficiencies of cloud native development. Enterprises have moved millions of calls to Azure and run twice as many calls on our cloud today than they did 2 years ago. And yet, we're still in the early innings when it comes to long-term cloud opportunities.

Speaker 15: The intelligent data platform trumps the competition because of its comprehensiveness, integration, and lower cost.

Speaker 16: Bayer, for example, used the data stack to evaluate results from clinical trials faster and more efficiently while meeting regulatory requirements, and ASUS chose Cosmos DB to power real-time product recommendations and order processing for over 26 million global customers. As another example, insurer AIA was able to save more than 20% by migrating to Azure and reduced IT provisioning time from multiple months to just an hour. We also continue to lead with hybrid computing with Azure Arc. We now have more than 12,000 Arc customers, double the number a year ago, including companies like Citrix, Northern Trust, and PayPal.

Speaker 15: Intelligent data platform trumps the competition because of its comprehensiveness, integration, and lower cost.

Speaker 16: As an example, insurer AIA was able to save more than 20% by migrating to Azure and reduced IT provisioning time from multiple months to just an hour. We also continue to lead with hybrid computing with Azure Arc. We now have more than 12,000 Arc customers, double the number a year ago, including companies like Citrix, Northern Trust, and PayPal. As an example, insurer AIA was able to save more than 20% by migrating to Azure and reduced IT provisioning time from multiple months to just an hour. We also continue to lead with hybrid computing with Azure Arc. We now have more than 12,000 Arc customers, double the number a year ago, including companies like Citrix, Northern Trust, and PayPal.

Speaker 16: We now have more than 12,000 Arc customers, double the number a year ago, including companies like Citrix, Northern Trust, and PayPal. As an example, insurer AIA was able to save more than 20% by migrating to Azure and reduced IT provisioning time from multiple months to just an hour. We also continue to lead with hybrid computing with Azure Arc. We now have more than 12,000 Arc customers, double the number a year ago, including companies like Citrix, Northern Trust, and PayPal.

They are included as additional clarifying items to aid investors in further understanding the company's second quarter performance in addition to the impact these items and events have on the financial results. All growth comparisons we make on the call today relate to the corresponding period of last year, unless otherwise noted. We will also provide growth rates in constant currency when available as a framework for assessing how our underlying business has performed, excluding the effect of foreign currency rate fluctuations. Where growth rates are the same in constant currency, we'll refer to the growth rate only.

Speaker 17: Now on to AI. The age of AI is upon us, and Microsoft is powering it. We are witnessing nonlinear improvements in the capability of foundation models, which we are making available as platforms.

Speaker 17: Now on to AI. The age of AI is upon us and Microsoft is powering it. We are witnessing nonlinear improvements in capability of foundation models, which we are making available as platforms.

Speaker 18: As customers select their cloud providers and invest in new workloads, we are well-positioned to capture that opportunity as a leader in AI. We have the most powerful AI supercomputing infrastructure in the cloud. It is being used by customers and partners like OpenAI to train state-of-the-art models and services, including ChatGPT.

Speaker 18: Now on to data. Customers continue to choose and implement the Microsoft Intelligent Data Platform over the competition because of its comprehensiveness, integration, and lower cost. Bayer, for example, used the data stack to evaluate results from clinical trials faster and more efficiently while meeting regulatory requirements. And ASOS chose Cosmos DB to power real-time product recommendations and order processing for over 26 million global customers.

Speaker 18: Now on to data. Customers continue to choose and implement the Microsoft Intelligent Data Platform over the competition because of its comprehensiveness, integration, and lower cost. Bayer, for example, used the data stack to evaluate results from clinical trials faster and more efficiently while meeting regulatory requirements, and ASOS chose Cosmos DB to power real-time product recommendations and order processing for over 26 million global customers.

We will post our prepared remarks on our website and immediately follow the call until the complete transcript is available. Today's call is being webcast live and recorded. If you ask a question, it will be included in our live transmission, in the transcript, and in any future use of the recording.

Speaker 19: Just last week, we made our Azure OpenAI service broadly available, and already over 200 customers, from KPMG to Al Jazeera, are using it. We will soon add support for ChatGPT, allowing customers to use it in their own applications for the first time.

You can replay the call and view the transcript on the Microsoft Investor Relations website. During this call, we'll be making forward-looking statements, which are predictions, projections, or other statements about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainty. actual results could materially differ because of factors discussed in today's earnings press release, in the comments made during this conference call, and in the risk factor section of our Form 10-K, Forms 10-Q, and other reports and filings with the Securities and Exchange Commission. And with that, I'll turn the call over to Satya. Thank you very much, Brett.

Speaker 20: Yesterday, we announced the completion of the next phase of our agreement with OpenAI. We are pleased to be their exclusive cloud provider and will deploy their models across our consumer and enterprise products as we continue to push the state of the art in AI. Now on to AI. The age of AI is upon us, and Microsoft is powering it. We are witnessing nonlinear improvements in the capability of foundation models, which we are making available as platforms. And as customers select their cloud providers and invest in new workloads, we are well positioned to capture that opportunity as a leader in AI. We have the most powerful AI supercomputing infrastructure in the cloud. It's being used by customers and partners like OpenAI to train state-of-the-art models and services, including ChatGPT.

Speaker 20: Now on to AI. The age of AI is upon us, and Microsoft is powering it. We are witnessing nonlinear improvements in the capability of foundation models, which we are making available as platforms. And as customers select their cloud providers and invest in new workloads, we are well positioned to capture that opportunity as a leader in AI. We have the most powerful AI supercomputing infrastructure in the cloud. It's being used by customers and partners like OpenAI to train state-of-the-art models and services, including ChatGPT.

Speaker 21: All of this innovation is driving growth across our Azure AI services. Azure ML revenue alone has increased more than 100% for five consecutive quarters, with companies like AXA, FedEx, and H&R Block choosing the service to deploy, manage, and govern their models.

Speaker 22: Now onto developers. Modernizing applications is mission-critical to any company's operations today. With GitHub, Visual Studio, and Azure PaaS services, we have the most comprehensive portfolio of tools to help.

Speaker 22: Just last week, we made our Azure OpenAI service broadly available, and already over 200 customers, from KPMG to Al Jazeera, are using it. We will soon add support for ChatGPT, enabling customers to use it in their own applications for the first time. Yesterday, we announced the completion of the next phase of our agreement with OpenAI. We are pleased to be their exclusive cloud provider, and we'll deploy their models across our consumer and enterprise products as we continue to push the state-of-the-art in AI.

Speaker 23: GitHub is now home to 100 million developers, and GitHub Copilot is the first large-scale AI product built for this era, fundamentally transforming developer productivity. More than 1 million people have used Copilot to date. Just last week, we made our Azure OpenAI service broadly available, and already over 200 customers, from KPMG to Al Jazeera, are using it. We will soon add support for ChatGPT, enabling customers to use it in their own applications for the first time. Yesterday, we announced the completion of the next phase of our agreement with OpenAI. We are pleased to be their exclusive cloud provider, and we'll deploy their models across our consumer and enterprise products as we continue to push the state-of-the-art in AI.

Speaker 23: Just last week, we made our Azure OpenAI service broadly available, and already over 200 customers, from KPMG to Al Jazeera, are using it. We will soon add support for ChatGPT, enabling customers to use it in their own applications for the first time. Yesterday, we announced the completion of the next phase of our agreement with OpenAI. We are pleased to be their exclusive cloud provider, and we'll deploy their models across our consumer and enterprise products as we continue to push the state-of-the-art in AI. Just last week, we made our Azure OpenAI service broadly available, and already, over 200 customers from KPMG to Al Jazeera are using it.

Speaker 23: We will soon add support for ChatGPT, enabling customers to use it in their own applications for the first time. Yesterday, we announced the completion of the next phase of our agreement with OpenAI. We are pleased to be their exclusive cloud provider, and we'll deploy their models across our consumer and enterprise products as we continue to push the state-of-the-art in AI.

Satya Nadella: I want to start with the context I shared with our employees last week about the changing environment and our priorities. As I meet with customers and partners, a few things are becoming increasingly clear. Just as we saw customers accelerate their digital spend during the pandemic, we are now seeing them optimize that spend. Additionally, organizations are exercising caution given the macroeconomic uncertainty, and the next major wave of computing is being born as we turn the world's most advanced AI models into a new computing platform. In this environment, we remain convicted of three things.

Speaker 24: This quarter, we brought copilot to businesses, and we have seen strong interest in early adoption from companies including Duolingo, Lemonade, and Volkswagen Carryout Software Group.

Speaker 24: This quarter we brought copilot to businesses and we have seen strong interest in early adoption from companies including Duolingo, Lemonade and Volkswagen Carryout Software Group.

Speaker 25: Now on to Power Platform. Power Platform is becoming an essential digital transformation tool, as every business looks to streamline its operations and drive productivity in today's environment.

Speaker 25: Now on to Power Platform. Power Platform is becoming an essential digital transformation tool, as every business looks to streamline their operations and drive productivity in today's environment.

Satya Nadella: This is an important time for Microsoft to work with our customers, helping them realize more value from their tech spend and building long-term loyalty and share position, while internally aligning our own cost structure with our revenue growth. This, in turn, sets us up to participate in the secular trend where digital spend as a percentage of GDP is only going to increase. And lastly, we're going to lead in the AI era, knowing that maximum enterprise value gets created during platform shifts. With that as the backdrop, Microsoft Cloud exceeded $27 billion in quarterly revenue, up 22% and 29% in constant currency. Now I'll highlight examples of our innovations, starting with Azure. Moving to the cloud is the best way for any customer in today's economy to mitigate demand uncertainty and energy costs while gaining efficiencies of cloud-native development. Enterprises have moved millions of cores to Azure and run twice as many cores on our cloud today than they did two years ago. And yet, we're still in the early innings when it comes to long-term cloud opportunities.

Speaker 25: All of this innovation is driving growth across our Azure AI services. Azure ML revenue alone has increased more than 100% for 5 quarters in a row, with companies like AXA, FedEx, and H&R Block choosing the service to deploy, manage, and govern their models.

Speaker 26: We are helping customers achieve superior time-to-value with our end-to-end suite spanning low-code, no-code tools, automation, virtual agents, and business intelligence. All of this innovation is driving growth across our Azure AI services. Azure ML revenue alone has increased more than 100% for 5 quarters in a row, with companies like AXA, FedEx, and H&R Block choosing the service to deploy, manage, and govern their models. All of this innovation is driving growth across our Azure AI services. Azure ML revenue alone has increased more than 100% for 5 quarters in a row, with companies like AXA, FedEx, and H&R Block choosing the service to deploy, manage, and govern their models.

Speaker 26: All of this innovation is driving growth across our Azure AI services. Azure ML revenue alone has increased more than 100% for 5 quarters in a row, with companies like AXA, FedEx, and H&R Block choosing the service to deploy, manage, and govern their models. All of this innovation is driving growth across our Azure AI services. Azure ML revenue alone has increased more than 100% for 5 quarters in a row, with companies like AXA, FedEx, and H&R Block choosing the service to deploy, manage, and govern their models.

Speaker 26: We are helping customers achieve superior time-to-value with our end-to-end suite spanning low-code, no-code tools, automation, virtual agents, and business intelligence.

Speaker 27: We are leading in robotic process automation. Power Automate has more than 45,000 customers, from AT&T to RoboBank, up over 50 percent year-over-year. We're making it easier for anyone to streamline repetitive tasks, introducing new AI-powered features to turn natural language prompts into complex workflows. Now, on to developers. Modernizing applications is mission-critical to any company's operations today, and with GitHub, Visual Studio, and Azure PaaS services, we have the most comprehensive portfolio of tools to help. GitHub is now home to 100 million developers, and GitHub Copilot is the first at-scale AI product built for this era, fundamentally transforming developer productivity. More than 1 million people have used Copilot to date. This quarter, we brought Copilot to businesses, and we have seen strong interest and early adoption from companies, including Duolingo, Lemonade, and Volkswagen's CARIAD Software Group.

Speaker 27: Now on to developers. Modernizing applications is mission-critical to any company's operations today. And with GitHub, Visual Studio, and Azure PaaS services, we have the most comprehensive portfolio of tools to help. GitHub is now home to 100 million developers, and GitHub Copilot is the first at-scale AI product built for this era, fundamentally transforming developer productivity. More than 1 million people have used Copilot to date. This quarter, we brought Copilot to businesses, and we have seen strong interest and early adoption from companies, including Duolingo, Lemonade, and Volkswagen's CARIAD Software Group.

Speaker 27: Now on to developers. Modernizing applications is mission-critical to any company's operations today. And with GitHub, Visual Studio, and Azure Pass services, we have the most comprehensive portfolio of tools to help. GitHub is now home to 100 million developers, and GitHub Copilot is the first at-scale AI product built for this era, fundamentally transforming developer productivity. More than 1 million people have used Copilot to date. This quarter, we brought Copilot to businesses, and we have seen strong interest and early adoption from companies, including Duolingo, Lemonade, and Volkswagen CARIAD Software Group.

Speaker 28: Now, on to business applications.

Speaker 29: Dynamics 365 is taking share as we help businesses digitize their service finance, customer experience, and supply chain functions.

Speaker 28: Now, on to business applications.

Speaker 29: Dynamics 365 is taking share as we help businesses digitize their service finance, customer experience, and supply chain functions.

Speaker 30: For example, G&J Pepsi Cola Bottlers is moving from reactive to predictive field service, and Fujifilm is optimizing its operations. Investech is closing deals faster with conversational intelligence. Baylor Scott and White in Texas are using our digital contact center to enhance patient communications.

Speaker 30: For example, G&J Pepsi Cola Bottlers are moving from reactive to predictive field service. Fujifilm is optimizing its operations. Investech is closing deals faster with conversational intelligence. Baylor Scott and White in Texas are using our digital contact center to enhance patient communications.

Speaker 31: In this quarter, we introduced our new supply chain platform, helping customers like iFit and Kraft Heinz apply AI to predict and mitigate disruptions. Now, on to Power Platform. Power Platform is becoming an essential digital transformation tool as every business looks to streamline their operations and drive productivity in today's environment. Now, on to Power Platform. Power Platform is becoming an essential digital transformation tool as every business looks to streamline their operations and drive productivity in today's environment. Now, on to Power Platform. Power Platform is becoming an essential digital transformation tool as every business looks to streamline their operations and drive productivity in today's environment.

Satya Nadella: As an example, Insura AIA was able to save more than 20% by migrating to Azure and reduced IT provisioning time from multiple months to just an hour. We also continue to lead with hybrid computing with Azure Arc. We now have more than 12,000 Arc customers, double the number a year ago, including companies like Citrix, Northern Trust, and PayPal. Now on to data.

Speaker 31: Now on to Power Platform. Power Platform is becoming an essential digital transformation tool as every business looks to streamline their operations and drive productivity in today's environment. Now on to Power Platform. Power Platform is becoming an essential digital transformation tool as every business looks to streamline their operations and drive productivity in today's environment.

Speaker 31: We are helping customers realize superior time to value with our end-to-end suite spanning low-code, no-code tools, automation, virtual agents, and business intelligence. We are leaders in robotic process automation. Power Automate has more than 45,000 customers, from AT&T to Rabobank, up over 50% year-over-year. And we are making it easier for anyone to streamline repetitive tasks, introducing new AI-powered features to turn natural language prompts into complex workflows.

Speaker 31: In this quarter, we introduced our new supply chain platform, helping customers like iFit and Kraft Heinz apply AI to predict and mitigate disruptions.

Speaker 32: Now on to industry solutions. Our industry and cross-industry clouds are driving pull-through for our entire tech stack. Our cloud for retail was front and center at NRF last week as we introduced new tools to help retailers manage their day-to-day operations and digitize their physical stores. We are helping customers realize superior time to value with our end-to-end suite spanning low-code, no-code tools, automation, virtual agents, and business intelligence. We are leading in robotic process automation. Power Automate has more than 45,000 customers, from AT&T to Rabobank, up over 50% year-over-year. And we are making it easier for anyone to streamline repetitive tasks, introducing new AI-powered features to turn natural language prompts into complex workflows.

Speaker 32: We are helping customers realize superior time to value with our end-to-end suite spanning low-code, no-code tools, automation, virtual agents, and business intelligence. We are leaders in robotic process automation. Power Automate has more than 45,000 customers, from AT&T to Rabobank, up over 50% year-over-year. And we are making it easier for anyone to streamline repetitive tasks, introducing new AI-powered features to turn natural language prompts into complex workflows. We are helping customers realize superior time to value with our end-to-end suite spanning low-code, no-code tools, automation, virtual agents, and business intelligence. We are leaders in robotic process automation. Power Automate has more than 45,000 customers, from AT&T to Rabobank, up over 50% year-over-year.

Satya Nadella: Customers continue to choose and implement the Microsoft Intelligent Data Platform over the competition because of its comprehensiveness, integration, and lower cost. Bayer, for example, used the data stack to evaluate results from clinical trials faster and more efficiently while meeting regulatory requirements, and ASOS chose Cosmos DB to power real-time product recommendations and automated processing for over 26 million global customers. Now on to AI. The age of AI is upon us, and Microsoft is powering it. We are witnessing nonlinear improvements in the capability of foundation models, which we are making available as platforms.

Speaker 32: We are helping customers realize superior time to value with our end-to-end suite spanning low-code, no-code tools, automation, virtual agents, and business intelligence. We are leaders in robotic process automation. Power Automate has more than 45,000 customers, from AT&T to Rabobank, up over 50% year-over-year. And we are making it easier for anyone to streamline repetitive tasks, introducing new AI-powered features to turn natural language prompts into complex workflows. Polish retailer ZAPCA has built the largest chain of autonomous stores in Europe with the help of our technology. In financial services, our new partnership with the London Stock Exchange Group will deliver the next generation of data analytics and workspace solutions.

Speaker 32: And we are making it easier for anyone to streamline repetitive tasks, introducing new AI-powered features to turn natural language prompts into complex workflows. Polish retailer ZAPCA has built the largest chain of autonomous stores in Europe with the help of our technology. In financial services, our new partnership with the London Stock Exchange Group will deliver the next generation of data analytics and workspace solutions. And in healthcare, we are rapidly becoming the partner of choice for any provider looking to generate real value from AI. With Nuance DAX, Ampere, and Intelligent Solutions, physicians can reduce documentation time by Now on to business applications.

Polish retailer ZAPCA has built the largest chain of autonomous stores in Europe with the help of our technology.

Speaker 32: And in healthcare, we are rapidly becoming the partner of choice for any provider looking to generate real value from AI. With Nuance DAX, Ampere, and Intelligent Solutions, physicians can reduce documentation time by Now on to business applications. Dynamics 365 is taking share as we help businesses digitize their service, finance, customer experience, and supply chain functions. For example, J&J, Pepsi-Cola Bottlers, is moving from reactive to predictive field service. Fujifilm is optimizing its operations. Investec is closing deals faster with conversational intelligence. Baylor Scott & White in Texas is using our digital contact center to enhance patient communications.

In financial services, our new partnership with the London Stock Exchange Group will deliver the next generation of data analytics and workspace solutions. And in healthcare, we are rapidly becoming the partner of choice for any provider looking to generate real value from AI. With Nuance DAX, Ampere, and Intelligent Solutions, physicians can reduce documentation time by...

Speaker 32: Dynamics 365 is taking share as we help businesses digitize their service, finance, customer experience, and supply chain functions. For example, J&J, Pepsi-Cola Bottlers, is moving from reactive to predictive field service. Fujifilm is optimizing its operations. Investec is closing deals faster with conversational intelligence. Baylor Scott & White in Texas is using our digital contact center to enhance patient communications. And this quarter, we introduced our new Supply Chain Platform, helping customers like iFit and Kraft Heinz apply AI to predict and mitigate disruptions.

Speaker 32: In financial services, our new partnership with the London Stock Exchange Group will deliver the next generation of data analytics and workspace solutions. And in healthcare, we are rapidly becoming the partner of choice for any provider looking to generate real value from AI. With Nuance DAX, Ampere, and Intelligent Solutions, physicians can reduce documentation time by Now on to business applications. Dynamics 365 is taking share as we help businesses digitize their service, finance, customer experience, and supply chain functions. For example, J&J, Pepsi-Cola Bottlers, and Fujifilm are optimizing their operations. Investec is closing deals faster with conversational intelligence. Baylor Scott & White in Texas is using our digital contact center to enhance patient communications. And this quarter, we introduced our new Supply Chain Platform, helping customers like iFit and Kraft Heinz apply AI to predict and mitigate disruptions.

Speaker 32: Now on to business applications. Dynamics 365 is taking share as we help businesses digitize their service, finance, customer experience, and supply chain functions. For example, J&J, Pepsi-Cola Bottlers, and Fujifilm are optimizing their operations. Investec is closing deals faster with conversational intelligence. Baylor Scott & White in Texas is using our digital contact center to enhance patient communications. And this quarter, we introduced our new Supply Chain Platform, helping customers like iFit and Kraft Heinz apply AI to predict and mitigate disruptions.

Speaker 32: And this quarter, we introduced our new Supply Chain Platform, helping customers like iFit and Kraft Heinz apply AI to predict and mitigate disruptions. In financial services, our new partnership with the London Stock Exchange Group will deliver the next generation of data analytics and workspace solutions. And in healthcare, we are rapidly becoming the partner of choice for any provider looking to generate real value from AI. With Nuance DAX, Ampere, and Intelligent Solutions, physicians can reduce documentation time by Now on to business applications. Dynamics 365 is taking share as we help businesses digitize their service, finance, customer experience, and supply chain functions.

Satya Nadella: And as customers select their cloud providers and invest in new workloads, we are well positioned to capture that opportunity as a leader in AI. We have the most powerful AI supercomputing infrastructure in the cloud. It's being used by customers and partners like OpenAI to train state-of-the-art models and services, including ChatGPT. Just last week, we made our Azure OpenAI service broadly available, and already over 200 customers from KPMG to Al Jazeera are using it. We will soon add support for ChatGPT, enabling customers to use it in their own applications for the first time.

Speaker 32: For example, J&J, Pepsi-Cola Bottlers, and Fujifilm are optimizing their operations. Investec is closing deals faster with conversational intelligence. Baylor Scott & White in Texas is using our digital contact center to enhance patient communications. And this quarter, we introduced our new Supply Chain Platform, helping customers like iFit and Kraft Heinz apply AI to predict and mitigate disruptions.

Speaker 32: It enables every individual to amplify their creativity and productivity with both our established applications as well as new applications like Designer, Stream, and Loop. We have more than 63 million consumer subscribers, up 12% year over year, and we introduced Microsoft 365 Basic. Bringing our premium offerings to more people, Teams surpassed 280 million monthly active users this quarter, demonstrating durable momentum since the pandemic. We continue to gain share across every category, from collaboration to chat to meetings to calling.

It enables every individual to amplify their creativity and productivity with both our established applications as well as new applications like Designer, Stream, and Loop. We have more than 63 million consumer subscribers, up 12% year over year, and we introduced Microsoft 365 Basic.

Speaker 32: Now on to Industry Solutions. Our industry and cross-industry clouds are driving pull-through for our entire tech stack. Our cloud for retail was front and center at NRF last week as we introduced new tools to help retailers manage their day-to-day operations and digitize their physical stores. Polish retailer Zabka has built the largest chain of autonomous stores in Europe with the help of our technology. Now on to Industry Solutions. Our industry and cross-industry clouds are driving pull-through for our entire tech stack. Our cloud for retail was front and center at NRF last week as we introduced new tools to help retailers manage their day-to-day operations and digitize their physical stores. Polish retailer Zabka has built the largest chain of autonomous stores in Europe with the help of our technology.

Speaker 32: Bringing our premium offerings to more people, Teams surpassed 280 million monthly active users this quarter, demonstrating durable momentum since the pandemic. We continue to gain share across every category, from collaboration to chat to meetings to calling.

Bringing our premium offerings to more people.

Satya Nadella: Yesterday, we announced the completion of the next phase of our agreement with OpenAI. We are pleased to be their exclusive cloud provider and will deploy their models across our consumer and enterprise products as we continue to push the state-of-the-art in AI. All of this innovation is driving growth across our Azure AI services. Azure ML revenue alone has increased more than 100% for five quarters in a row, with companies like AXA, FedEx, and H&R Block choosing the service to deploy, manage, and govern their models. Now on to developers. Modernizing applications is mission critical to any company's operations today. And with GitHub, Visual Studio, and Azure PaaS services, we have the most comprehensive portfolio of tools to help. GitHub is now home to 100 million developers, and GitHub Copilot is the first at-scale AI product built for this era, fundamentally transforming developer productivity.

Teams surpassed 280 million monthly active users this quarter, demonstrating durable momentum since the pandemic. We continue to gain share across every category from collaboration to chat to meetings to calling.

Speaker 32: Teams has emerged as a first-class platform. Apps from Adobe, Atlassian, Poly, ServiceNow, and Workday have each surpassed half a million active users, and the number of third-party apps with more than 10,000 users has increased nearly 40% year-over-year. There are more than 500,000 active Teams Rooms devices, up 70% year over year, and the number of customers with more than 1,000 rooms has doubled year over year. Novo Nordisk will deploy Teams Rooms in 5,000 meeting rooms globally in our largest deal to date. In Financial Services, our new partnership with the London Stock Exchange Group will deliver the next generation of data analytics and workspace solutions. And in healthcare, we are rapidly becoming the partner of choice for any provider looking to generate real value from AI. With the Nuance DAX ambient intelligence solution, physicians can reduce documentation time by half, improving the quality of their patient interactions.

Teams has emerged as a first-class platform. Apps from Adobe, Atlassian, Poly, ServiceNow, and Workday have each surpassed half a million active users, and the number of third-party apps with more than 10,000 users has increased nearly 40% year-over-year.

Speaker 32: There are more than 500,000 active Teams Rooms devices, up 70% year over year, and the number of customers with more than 1,000 rooms has doubled year over year. Novo Nordisk will deploy Teams Rooms in 5,000 meeting rooms globally in our largest deal to date. In Financial Services, our new partnership with the London Stock Exchange Group will deliver the next generation of data analytics and workspace solutions. And in healthcare, we are rapidly becoming the partner of choice for any provider looking to generate real value from AI. With the Nuance DAX ambient intelligence solution, physicians can reduce documentation time by half, improving the quality of their patient interactions.

Speaker 32: In Financial Services, our new partnership with the London Stock Exchange Group will deliver the next generation of data analytics and workspace solutions. And in healthcare, we are rapidly becoming the partner of choice for any provider looking to generate real value from AI. With Nuance DAX, Ampion's intelligent solution, physicians can reduce documentation time by half, improving the quality of their patient interactions. Teams Phone continues to gain market share and is the market leader in cloud calling. We have added more than 5 million PSTN seats in the last 12 months alone. With Teams Premium, we are meeting enterprise demand for advanced features like end-to-end encryption and AI-powered recaps. We have seen strong interest in the preview, and we will make it broadly available next month. With Microsoft Viva, we have created a new market category for employee experience and organizational productivity. Now on to systems of work.

There are more than 500,000 active Teams Rooms devices, up 70% year over year, and the number of customers with more than 1,000 rooms has doubled year over year. Novo Nordisk will deploy Teams Rooms in 5,000 meeting rooms globally in our largest deal to date.

Speaker 32: In Financial Services, our new partnership with the London Stock Exchange Group will deliver the next generation of data analytics and workspace solutions. And in healthcare, we are rapidly becoming the partner of choice for any provider looking to generate real value from AI. With Nuance DAX, Ampion's intelligent solution, physicians can reduce documentation time by half, improving the quality of their patient interactions. In Financial Services, our new partnership with the London Stock Exchange Group will deliver the next generation of data analytics and workspace solutions. And in healthcare, we are rapidly becoming the partner of choice for any provider looking to generate real value from AI. With Nuance DAX, Ampion's intelligent solution, physicians can reduce documentation time by half, improving the quality of their patient interactions.

Teams Phone continues to gain market share and is the market leader in cloud calling. We have added more than 5 million PSTN seats in the last 12 months alone. With Teams Premium, we are meeting enterprise demand for advanced features like end-to-end encryption and AI-powered recaps.

Speaker 32: Microsoft 365, Teams, and Viva are essential for every organization to adapt to the new world of work. Microsoft 365 is rapidly evolving into an AI-first platform that enables every individual to amplify their creativity and productivity with both our established applications as well as new applications like Designer, Stream, and Loop. We have more than 63 million consumer subscribers, up 12% year-over-year, and we introduced Microsoft 365 Basic, bringing our premium offerings to more people.

Speaker 32: Teams Phone continues to gain market share and is the market leader in cloud calling. We have added more than 5 million PSTN seats in the last 12 months alone. With Teams Premium, we are meeting enterprise demand for advanced features like end-to-end encryption and AI-powered recaps. We have seen strong interest in the preview, and we will make it broadly available next month. With Microsoft Viva, we have created a new market category for employee experience and organizational productivity. Now on to systems of work. Microsoft 365, Teams, and Viva are essential for every organization to adapt to the new world of work.

Satya Nadella: More than 1 million people have used Copilot to date. This quarter, we brought Copilot to businesses, and we have seen strong interest in early adoption from companies including Duolingo, Lemonade, and Volkswagen Carryout Software Group. Now on to Power Platform. Power Platform is becoming an essential digital transformation tool as every business looks to streamline their operations and drive productivity in today's environment. We are helping customers realize superior time to value with our end-to-end suite spanning low-code, no-code tools, automation, virtual agents, and business intelligence. We are leaders in robotic process automation. Power Automate has more than 45,000 customers, from AT&T to RoboBank, up over 50% year over year. And we are making it easier for anyone to streamline repetitive tasks, introducing new AI-powered features to turn natural language prompts into complex workflows.

Speaker 32: We have seen strong interest in the preview, and we will make it broadly available next month. With Microsoft Viva, we have created a new market category for employee experience and organizational productivity. Now on to systems of work. Microsoft 365, Teams, and Viva are essential for every organization to adapt to the new world of work. Microsoft 365 is rapidly evolving into an AI-first platform that enables every individual to amplify their creativity and productivity with both our established applications as well as new applications like Designer, Stream, and Loop. We have more than 63 million consumer subscribers, up 12% year-over-year, and we introduced Microsoft 365 Basic, bringing our premium offerings to more people.

Speaker 32: Microsoft 365 is rapidly evolving into an AI-first platform that enables every individual to amplify their creativity and productivity with both our established applications as well as new applications like Designer, Stream, and Loop. We have more than 63 million consumer subscribers, up 12% year-over-year, and we introduced Microsoft 365 Basic, bringing our premium offerings to more people.

We have seen strong interest in the preview, and we will make it broadly available next month. With Microsoft Viva, we have created a new market category for employee experience and organizational productivity.

Speaker 32: Now on to systems of work. Microsoft 365, Teams, and Viva are essential for every organization to adapt to the new world of work. Microsoft 365 is rapidly evolving into an AI-first platform that enables every individual to amplify their creativity and productivity with both our established applications as well as new applications like Designers, Stream, and Loop. We have more than 63 million consumer subscribers, up 12% year-over-year, and we introduced Microsoft 365 Basic, bringing our premium offerings to more people. US Bank is using Viva to streamline employee communications, and Carlsberg turned to Viva to centralize its digital employee experience for 29,000 employees. In today's environment, aligning the entire organization on the most important work is critical. Viva Goals brings objectives and key results directly into the daily work.

Speaker 32: Teams surpassed 280 million monthly active users this quarter, showing durable momentum since the pandemic, and we continue to take share across every category, from collaboration to chat to meetings to calling. Teams has emerged as a first-class platform. Apps from Adobe, Atlassian, Polly, ServiceNow, and Workday have each surpassed 0.5 million active users, and the number of third-party apps with more than 10,000 users increased nearly 40% year-over-year. There are more than 500,000 active Teams Rooms devices, up 70% year-over-year, and the number of customers with more than 1,000 rooms doubled year-over-year. Teams surpassed 280 million monthly active users this quarter, showing durable momentum since the pandemic, and we continue to take share across every category, from collaboration to chat to meetings to calling.

Speaker 32: Teams has emerged as a first-class platform. Apps from Adobe, Atlassian, Poly, ServiceNow, and Workday have each surpassed 0.5 million active users, and the number of third-party apps with more than 10,000 users increased nearly 40% year-over-year. There are more than 500,000 active Teams Rooms devices, up 70% year-over-year, and the number of customers with more than 1,000 rooms doubled year-over-year. Teams surpassed 280 million monthly active users this quarter, showing durable momentum since the pandemic, and we continue to take share across every category, from collaboration to chat to meetings to calling. Teams has emerged as a first-class platform.

US Bank is using Viva to streamline employee communications, and Carlsberg turned to Viva to centralize its digital employee experience for 29,000 employees. In today's environment, aligning the entire organization on the most important work is critical. Viva Goals bring objectives and key results directly into the daily workflow.

Speaker 32: Apps from Adobe, Atlassian, Poly, ServiceNow, and Workday have each surpassed 0.5 million active users, and the number of third-party apps with more than 10,000 users increased nearly 40% year-over-year. Additionally, there are more than 500,000 active Teams Rooms devices, up 70% year-over-year, and the number of customers with more than 1,000 rooms doubled year-over-year.

Speaker 32: Teams surpassed 280 million monthly active users this quarter, showing durable momentum since the pandemic, and we continue to take share across every category, from collaboration to chat to meetings to calling. Teams has emerged as a first-class platform. Apps from Adobe, Atlassian, Poly, ServiceNow, and Workday have each surpassed 0.5 million active users, and the number of third-party apps with more than 10,000 users increased nearly 40% year-over-year. Additionally, there are more than 500,000 active Teams Rooms devices, up 70% year-over-year, and the number of customers with more than 1,000 rooms doubled year-over-year.

Speaker 32: Teams surpassed 280 million monthly active users this quarter, showing durable momentum since the pandemic, and we continue to take share across every category, from collaboration to chat to meetings to calling. Teams has emerged as a first-class platform. Apps from Adobe, Atlassian, Poly, ServiceNow, and Workday have each surpassed 0.5 million active users, and the number of third-party apps with more than 10,000 users increased nearly 40% year-over-year. Additionally, there are more than 500,000 active Teams Rooms devices, up 70% year-over-year, and the number of customers with more than 1,000 rooms doubled year-over-year. Teams surpassed 280 million monthly active users this quarter, showing durable momentum since the pandemic, and we continue to take share across every category, from collaboration to chat to meetings to calling.

Speaker 32: We continue to see organizations consolidate on Microsoft 365. 80% of our enterprise customers use five or more Microsoft 365 applications. And organizations across the private and public sector, including EY, IKEA, NTT Communications, Rio Tinto, as well as the state government of Virginia are increasingly choosing our premium E5 offerings for advanced security compliance voice and analytics, as well as the state government of Virginia are increasingly choosing our premium E5 offerings for advanced security compliance voice and analytics.

We continue to see organizations consolidate on Microsoft 365. 80% of our enterprise customers use five or more Microsoft 365 applications. And organizations across the private and public sector, including EY, IKEA, NTT Communications, Rio Tinto.

Satya Nadella: Now on to business applications. Dynamics 365 is taking share as we help businesses digitize their service, finance, customer experience, and supply chain functions. For example, G&J Pepsi-Cola Bottlers is moving from reactive to predictive field service. Fujifilms is optimizing its operations. Investec is closing deals faster with conversational intelligence. Baylor Scott & White in Texas is using our digital contact center to enhance patient communications.

as well as the state government of Virginia are increasingly choosing our premium E5 offerings for advanced security compliance voice and analytics.

Speaker 32: Thank you. Now on to Windows. While the number of PCs shipped declined during the quarter, returning to pre-pandemic levels, usage intensity of Windows continues to be higher than before the pandemic, with time spent on PCs up nearly 10%. While the number of PCs shipped declined during the quarter, returning to pre-pandemic levels, usage intensity of Windows continues to be higher than before the pandemic, with time spent on PCs up nearly 10%.

Thank you.

Now on to Windows.

While the number of PCs shipped declined during the quarter, returning to pre-pandemic levels, usage intensity of Windows continues to be higher than before the pandemic, with time spent on PCs up nearly 10%.

Satya Nadella: And this quarter, we introduced our new supply chain platform, helping customers like iFit and Kraft Heinz apply AI to predict and mitigate disruption. Now on to industry solutions. Our industry and cross-industry clouds are driving pull-through for our entire tech stack. Our cloud for retail was front and center at NRF last week as we introduced new tools to help retailers manage their day-to-day operations and digitize their physical stores. Polish retailer Zapka has built the largest chain of autonomous stores in Europe with the help of our technology.

Speaker 32: Novo Nordisk will deploy Teams Rooms in 5,000 meeting rooms globally in our largest deal to date. Teams Phone continues to take market share and is the market leader in cloud calling. We have added more than 5 million PSTN seats over the last 12 months alone. With Teams Premium, we are meeting enterprise demand for advanced features like end-to-end encryption and AI-powered recaps. We have seen strong interest in preview, and we will make it broadly available next month. Novo Nordisk will deploy Teams Rooms to 5,000 meeting rooms globally in our largest deal to date. Teams Phone continues to take share and is the market leader in cloud calling. We have added more than 5 million PSTN seats in the last 12 months alone. With Teams Premium, we are meeting enterprise demand for advanced features like end-to-end encryption and AI-powered recaps. We have seen strong interest in Teams Premium in preview, and we will make it broadly available next month.

Speaker 32: Novo Nordisk will deploy Teams Rooms in 5,000 meeting rooms globally in our largest deal to date. Teams Phone continues to take market share and is the market leader in cloud calling. We have added more than 5 million PSTN seats over the last 12 months alone. With Teams Premium, we are meeting enterprise demand for advanced features like end-to-end encryption and AI-powered recaps. We have seen strong interest in the preview, and we will make it broadly available next month. Monthly active devices also reached an all-time high this quarter, and for commercial customers, Windows 11 adoption continues to grow due to its differentiated security and productivity value proposition.

Speaker 32: Monthly active devices also reached an all-time high this quarter, and for commercial customers, Windows 11 adoption continues to grow due to its differentiated security and productivity value proposition. Novo Nordisk will deploy Teams Rooms to 5,000 meeting rooms globally in our largest deal to date. Teams Phone continues to take share and is the market leader in cloud calling. We have added more than 5 million PSTN seats in the last 12 months alone. With Teams Premium, we are meeting enterprise demand for advanced features like end-to-end encryption and AI-powered recaps. We have seen strong interest in Teams Premium in preview, and we will make it broadly available next month.

Monthly active devices also reached an all-time high this quarter, and for commercial customers, Windows 11 adoption continues to grow due to its differentiated security and productivity value proposition.

Speaker 32: We're also seeing growth in cloud-delivered Windows, with usage of Windows 365 and Azure Virtual Desktop up by over two-thirds year over year. Leaders in every industry, from Campari and Grant Thornton UK to Nutrien and Woolworths, are using cloud-delivered Windows, including more than 60% of the Fortune 500.

We're also seeing growth in cloud-delivered Windows with usage of Windows 365 and Azure Virtual Desktop up by over two-thirds year over year. Leaders in every industry, from Campari and Grant Thornton UK to Nutrien and Woolworths, are using cloud-delivered Windows including more than 60% of the Fortune 500.

Satya Nadella: In financial services, our new partnership with London Stock Exchange Group will deliver the next generation of data analytics and workspace solutions. And in healthcare, we are rapidly becoming the partner of choice for any provider looking to generate real value from AI. With Nuance DAX, Ampion Intelligence Solutions, physicians can reduce documentation time by half, improving the quality of their patient interactions.

Speaker 32: Now on to security. With Microsoft Viva, we have created a new market category for employee experience and organizational productivity. U.S. Bank is using Viva to streamline employee communications, and Carlsberg turned to Viva to centralize its digital employee experience for 29,000 employees. In today's environment, aligning the entire organization and the most important work is critical. Viva Goals brings objectives and key results directly into the flow of daily work.

Speaker 32: Over the past 12 months, our security business surpassed $20 billion in revenue as we helped customers protect their digital estates across cloud and endpoint platforms. With Microsoft Viva, we have created a new market category for employee experience and organizational productivity. U.S. Bank is using Viva to streamline employee communications, and Carlsberg turned to Viva to centralize its digital employee experience for 29,000 employees. In today's environment, aligning the entire organization and the most important work is critical. Viva Goals brings objectives and key results directly into the flow of daily work. We are the only company with integrated end-to-end tools spanning identity, security, compliance, device management, and privacy, informed and trained on over 65 trillion signals each day.

Speaker 32: With Microsoft Viva, we have created a new market category for employee experience and organizational productivity. U.S. Bank is using Viva to streamline employee communications, and Carlsberg turned to Viva to centralize its digital employee experience for 29,000 employees. In today's environment, aligning the entire organization and the most important work is critical. Viva Goals brings objectives and key results directly into the flow of daily work. We are the only company with integrated end-to-end tools spanning identity, security, compliance, device management, and privacy, informed and trained on over 65 trillion signals each day. We are taking share across all major categories we serve.

Now on to security.

Over the past 12 months, our security business surpassed $20 billion in revenue as we helped customers protect their digital estates across cloud and endpoint platforms.

Speaker 32: We are the only company with integrated end-to-end tools spanning identity, security, compliance, device management, and privacy, informed and trained on over 65 trillion signals each day. We are taking share across all major categories we serve. Customers are consolidating on our security stack in order to reduce risk, complexity, and cost. The number of organizations with four or more workloads increased over 40% year over year. UK retailer Fraser Group, for example, consolidated from 10 Viva has also become an indispensable tool for business processes. Viva Sales is the super app in Microsoft 365 for sellers. We have seen strong interest since making it generally available this quarter.

Speaker 32: Customers are consolidating on our security stack in order to reduce risk, complexity, and cost. The number of organizations with four or more workloads increased over 40% year over year. UK retailer Fraser Group, for example, consolidated from 10 Viva has also become an indispensable tool for business processes. Viva Sales is the super app in Microsoft 365 for sellers. We have seen strong interest since making it generally available this quarter. All-up, we continue to see organizations consolidate on Microsoft 365. 80% of our enterprise customers use 5 or more Microsoft 365 applications. And organizations across the private and public sectors, including EY, IKEA, NTT Communications, Rio Tinto, as well as the State Government of Virginia, are increasingly choosing our premium E5 offerings for advanced security, compliance, voice, and analytics.

We are the only company with integrated end-to-end tools spanning identity, security, compliance, device management, and privacy, informed and trained on over 65 trillion signals each day.

Speaker 32: We are taking share across all the major categories we serve. Customers are consolidating on our security stack in order to reduce risk, complexity, and cost. The number of organizations with four or more workloads increased over 40% year over year. UK retailer Fraser Group, for example, consolidated from 10. Viva has also become an indispensable tool for business processes. Viva Sales is the super app in Microsoft 365 for sellers. We have seen strong interest since making it generally available this quarter. All up, we continue to see organizations consolidate on Microsoft 365. For example, 80% of our enterprise customers use 5 or more Microsoft 365 applications. And organizations across the private and public sectors, including EY, IKEA, NTT Communications, Rio Tinto, as well as the State Government of Virginia, are increasingly choosing our premium E5 offerings for advanced security, compliance, voice, and analytics.

Satya Nadella: Now on to systems of work. Microsoft 365, Teams, and Viva are essential for every organization to adapt to the new world of work. Microsoft 365 is rapidly evolving into an AI-first platform that enables every individual to amplify their creativity and productivity with both our established applications as well as new applications like Designer, Stream, and Loop. We have more than 63 million consumer subscribers, up 12% year-over-year, and we introduced Microsoft 365 Basic, bringing our premium offerings to more people. Teams surpassed 280 million monthly active users this quarter, showing durable momentum since the pandemic, and we continue to take share across every category, from collaboration to chat to meetings to colleagues. Teams has emerged as a first-class platform. Apps from Adobe, Atlassian, Polly, ServiceNow, and Workday have each surpassed half a million active users, and the number of third-party apps with more than 10,000 users increased nearly 40% year-over-year. There are more than 500,000 active Teams Rooms devices, up 70% year-over-year, and the number of customers with more than 1,000 rooms doubled year-over-year. Novo Nordisk will deploy Teams Rooms in 5,000 meeting rooms globally in our largest deal to date.

Speaker 32: All up, we continue to see organizations consolidate on Microsoft 365. For example, 80% of our enterprise customers use 5 or more Microsoft 365 applications. And organizations across the private and public sectors, including EY, IKEA, NTT Communications, Rio Tinto, as well as the State Government of Virginia, are increasingly choosing our premium E5 offerings for advanced security, compliance, voice, and analytics.

We are taking share across all major categories we serve. Customers are consolidating on our security stack in order to reduce risk, complexity, and cost. The number of organizations with four or more workloads increased over 40% year over year. UK retailer Fraser Group, for example, consolidated from 10...

Speaker 32: Viva has also become an indispensable tool for business processes. Viva Sales is the super app in Microsoft 365 for sellers. We have seen strong interest since making it generally available this quarter. All up, we continue to see organizations consolidate on Microsoft 365. 80% of our enterprise customers use 5 or more Microsoft 365 applications. And organizations across the private and public sectors, including EY, IKEA, NTT Communications, Rio Tinto, as well as the State Government of Virginia, are increasingly choosing our premium E5 offerings for advanced security, compliance, voice, and analytics.

Speaker 32: Viva has also become an indispensable tool for business processes. Viva Sales is the super app in Microsoft 365 for sellers. We have seen strong interest since making it generally available this quarter. All up, we continue to see organizations consolidate on Microsoft 365. 80% of our enterprise customers use 5 or more Microsoft 365 applications. And organizations across the private and public sectors, including EY, IKEA, NTT Communications, Rio Tinto, as well as the state government of Virginia, are increasingly choosing our premium E5 offerings for advanced security, compliance, voice, and analytics capabilities. Viva has also become an indispensable tool for business processes.

Speaker 32: Viva Sales is the super app in Microsoft 365 for sellers. We have seen strong interest since making it generally available this quarter. All up, we continue to see organizations consolidate on Microsoft 365. For example, 80% of our enterprise customers use 5 or more Microsoft 365 applications. And organizations across the private and public sectors, including EY, IKEA, NTT Communications, Rio Tinto, as well as the state government of Virginia, are increasingly choosing our premium E5 offerings for advanced security, compliance, voice, and analytics capabilities.

Speaker 32: Now onto LinkedIn. People and companies continue to look to LinkedIn to connect, learn, sell, and get hired. We once again saw record engagement among our more than 900 million members. Three members are signing up every second. Over 80% of these members are from outside the United States. Now, on to Windows. While the number of PCs shipped declined during the quarter, returning to pre-pandemic levels, usage intensity of Windows continues to be higher than pre-pandemic levels, with time spent per PC up nearly 10%. Monthly active devices also reached an all-time high this quarter. And for commercial customers, Windows 11 adoption continues to grow because of its differentiated security and productivity value proposition.

capabilities.

Now onto LinkedIn. People and companies continue to look to LinkedIn to connect, learn, sell, and get hired. We once again saw record engagement among our more than 900 million members.

Speaker 32: Three new members are signing up every second, and over 80% of these members are from outside the United States.

Speaker 32: Now on to Windows. While the number of PCs shipped declined during the quarter, returning to pre-pandemic levels, usage intensity of Windows continues to be higher than pre-pandemic levels, with time spent per PC up nearly 10%. Monthly active devices also reached an all-time high this quarter. And for commercial customers, Windows 11 adoption continues to grow because of its differentiated security and productivity value proposition. And as members come to the platform to find and share professional knowledge and expertise, newsletter creation was up 10x year-over-year.

Speaker 32: And as members come to the platform to find and share professional knowledge and expertise, newsletter creation was up 10x year-over-year. Now on to Windows. While the number of PCs shipped declined during the quarter, returning to pre-pandemic levels, usage intensity of Windows continues to be higher than pre-pandemic levels, with time spent per PC up nearly 10%. Monthly active devices also reached an all-time high this quarter. And for commercial customers, Windows 11 adoption continues to grow because of its differentiated security and productivity value proposition.

Three members are signing up every second. Over 80% of these members are from outside the United States.

And as the members come to the platform to find and share professional knowledge and expertise, newsletter creation was up 10x year-over-year.

Speaker 32: Skills are the new currency, and people are increasingly investing in their skill-building to keep up with their changing roles in industries. We offer over 20,000 courses in 11 languages, and companies are also turning to a skills-based approach instead of degrees or pedigree to identify qualified talent, with more than 45% of hires on LinkedIn explicitly using skills data to fill their roles. We're also seeing growth in cloud-delivered Windows, with usage of Windows 365 and Azure Virtual Desktop up by over 2/3 year-over-year. Leaders in every industry, from Campari and Grant Thornton U.K. to Nutrien and Woolworths, are using cloud-delivered Windows, including more than 60% of the Fortune 500.

Skills are the new currency, and people are increasingly investing in their skill-building to keep up with their changing roles in industries.

Speaker 32: We offer over 20,000 courses in 11 languages, and companies are also turning to a skills-based approach instead of degrees or pedigree to identify qualified talent, with more than 45% of hires on LinkedIn explicitly using skills data to fill their roles. We're also seeing growth in cloud-delivered Windows, with usage of Windows 365 and Azure Virtual Desktop up by over 2/3 year-over-year. Leaders in every industry, from Campari and Grant Thornton U.K. to Nutrien and Woolworths, are using cloud-delivered Windows, including more than 60% of the Fortune 500. We're also seeing growth in cloud-delivered Windows, with usage of Windows 365 and Azure Virtual Desktop up by over 2/3 year-over-year.

Speaker 32: We're also seeing growth in cloud-delivered Windows, with usage of Windows 365 and Azure Virtual Desktop up by over 2/3 year-over-year. Leaders in every industry, from Campari and Grant Thornton U.K. to Nutrien and Woolworths, are using cloud-delivered Windows, including more than 60% of the Fortune 500. We're also seeing growth in cloud-delivered Windows, with usage of Windows 365 and Azure Virtual Desktop up by over 2/3 year-over-year. Leaders in every industry, from Campari and Grant Thornton U.K. to Nutrien and Woolworths, are using cloud-delivered Windows, including more than 60% of the Fortune 500.

We offer over 20,000 courses in 11 languages, and companies are also turning to a skills-based approach instead of degrees or pedigree to identify qualified talent, with more than 45% of hires on LinkedIn explicitly using skills data to fill their roles.

Speaker 32: Leaders in every industry, from Campari and Grant Thornton U.K. to Nutrien and Woolworths, are using cloud-delivered Windows, including more than 60% of the Fortune 500. We're also seeing growth in cloud-delivered Windows, with usage of Windows 365 and Azure Virtual Desktop up by over 2/3 year-over-year. Leaders in every industry, from Campari and Grant Thornton U.K. to Nutrien and Woolworths, are using cloud-delivered Windows, including more than 60% of the Fortune 500.

Speaker 32: Finally, LinkedIn Marketing Solutions continues to be a leader in B2B digital advertising, helping companies deliver the right message to the right audience on a safe and trusted platform.

Satya Nadella: Teams Phone continues to take share and is the market leader in cloud calling. We have added more than 5 million PSTN seats over the last 12 months alone. With Teams Premium, we are meeting enterprise demand for advanced features like end-to-end encryption and AI-powered recaps. We have seen strong interest in Preview, and we will make it broadly available next month.

Finally, LinkedIn Marketing Solutions continues to be a leader in B2B digital advertising, helping companies deliver the right message to the right audience on a safe and trusted platform.

Speaker 32: Now on to advertising. Despite headwinds in the ad market, we continue to innovate across our first- and third-party advertising platforms. Now on to security. Over the past 12 months, our security business surpassed $20 billion in revenue as we help customers protect their digital estate across clouds and endpoint platforms. We're the only company with integrated end-to-end tools spanning identity, security, compliance, device management, and privacy informed and trained on over 65 trillion signals each day. And we are taking share across all major categories we serve. Customers are consolidating on our security stack in order to reduce risk, complexity, and cost.

Now on to advertising. Despite headwinds in the ad market, we continue to innovate across our first- and third-party portfolios.

Speaker 32: Our browser, Microsoft Edge, gained share for the seventh consecutive quarter. Bing continues to gain share in the United States. And daily users of our stock personalized content feed increased over 30% year-over-year. We are now empowering retailers and expanding our third-party inventory.

Speaker 32: Now on to security. Over the past 12 months, our security business surpassed $20 billion in revenue as we help customers protect their digital estate across clouds and endpoint platforms. We're the only company with integrated end-to-end tools spanning identity, security, compliance, device management, and privacy informed and trained on over 65 trillion signals each day. And we are taking share across all major categories we serve. Customers are consolidating on our security stack in order to reduce risk, complexity, and cost. Now, on to security. Over the past 12 months, our security business surpassed $20 billion in revenue as we help customers protect their digital estate across clouds and endpoint platforms.

Speaker 32: Now on to security. Over the past 12 months, our security business surpassed $20 billion in revenue as we help customers protect their digital estate across clouds and endpoint platforms. We're the only company with integrated end-to-end tools spanning identity, security, compliance, device management, and privacy informed and trained on over 65 trillion signals each day. And we are taking share across all major categories we serve. Customers are consolidating on our security stack in order to reduce risk, complexity, and cost. Additionally, our browser, Microsoft Edge, gained share for the seventh consecutive quarter. Bing continues to gain market share in the United States, and daily users of our stock personalized content feed increased over 30% year-over-year. We are now empowering retailers and expanding our third-party inventory.

Our browser, Microsoft Edge, gained share for the seventh consecutive quarter. Bing continues to gain share in the United States. And daily users of our stock personalized content feed increased over 30% year-over-year. We are now empowering retailers and expanding our third-party inventory.

Satya Nadella: With Microsoft Viva, we have created a new market category for employee experience and organizational productivity. The U.S. Bank is using Viva to streamline employee communications, and Carlsberg turned to Viva to centralize its digital employee experience for 29,000 employees. In today's environment, aligning the entire organization and the most important work is critical. Viva Goals brings objectives and key results directly into the flow of daily work. Viva has also become an indispensable tool for business processes.

Speaker 32: We're the only company with integrated end-to-end tools spanning identity, security, compliance, device management, and privacy informed and trained on over 65 trillion signals each day. And we are taking share across all major categories we serve. Customers are consolidating on our security stack in order to reduce risk, complexity, and cost.

Speaker 32: With Promote IQ, we are building a complete omnichannel media platform for companies like Australian retailer Endeavor, as well as Canada's Hudson's Bay and Global, the largest Brazilian TV broadcasters. Xanda was chosen to launch a new media buying platform in that market.

With Promote IQ, we are building a complete omnichannel media platform for companies like the Australian retailer Endeavor, as well as Canada's Hudson's Bay and Global, the largest Brazilian TV broadcasters. Xanda was chosen to launch a new media buying platform in that market.

Speaker 32: Now onto gaming. In gaming, we continue to pursue our ambition to give players more choices to play great games wherever, whenever, and however they want. We saw new highs for Game Pass subscriptions, game streaming hours, and monthly active devices, and monthly active users surpassed a record 120 million during the pandemic.

Speaker 32: The number of organizations with 4 or more workloads increased over 40% year-over-year. U.K. retailer Frasers Group, for example, consolidated from 10 security vendors to just Microsoft. Roku moved identity and access management to the cloud with Azure Active Directory, and Astellas Pharma, Ferrovial, and the University of Toronto all switched to Microsoft Sentinel because of our integrated XDR and SIEM capabilities.

Speaker 32: The number of organizations with 4 or more workloads increased over 40% year-over-year. U.K. retailer Fraser Group, for example, consolidated from 10 security vendors to just Microsoft. Roku moved identity and access management to the cloud with Azure Active Directory, and Estella Pharma, Ferrovial, and the University of Toronto all switched to Microsoft Sentinel because of our integrated XDR and SIM capabilities.

Now onto gaming. In gaming, we continue to pursue our ambition to give players more choices to play great games wherever, whenever, and however they want. We saw new highs for Game Pass subscriptions, game streaming hours, and monthly active devices. And monthly active users surpassed a record 120 million during the pandemic.

Satya Nadella: Viva Sales is a super app in Microsoft 365. We have seen strong interest since making it generally available this quarter. All up, we continue to see organizations consolidate on Microsoft 365. For example, 80% of our enterprise customers use five or more Microsoft 365 applications. And organizations across the private and public sectors, including EY, IKEA, NTT Communications, Rio Tinto, as well as the state government of Virginia, are increasingly choosing our premium E5 offerings for advanced security, compliance, voice, and analytics. Now on to Windows.

Speaker 32: Now on to LinkedIn. People and companies continue to look to LinkedIn to connect, learn, sell, and get hired. We once again saw record engagement among our more than 900 million members. Three members are signing up every second. Over 80% of these members are from outside the United States. And as the members come to the platform to find and share professional knowledge and expertise, newsletter creation was up 10x year-over-year, including exciting new titles from ZeniMax and Xbox Game Studios, and we'll be sharing details and gameplay at our showcase tomorrow.

Speaker 32: Now on to LinkedIn. People and companies continue to look to LinkedIn to connect, learn, sell, and get hired. We once again saw record engagement among our more than 900 million members. Three members are signing up every second. Over 80% of these members are from outside the United States. And as these members come to the platform to find and share professional knowledge and expertise, newsletter creation was up 10x year-over-year. In closing, I want to extend my deepest gratitude to our employees for their continued dedication to our mission, customers, and partners. We will continue to pursue our long-term opportunities and innovation agenda with urgency, while also raising the bar on our operational excellence. With that, I'll hand it over to Amy.

including exciting new titles from ZeniMax and Xbox Game Studios, and we'll be sharing details and gameplay at our showcase tomorrow.

Speaker 32: Skills are the new currency, and people are increasingly investing in their skill-building to keep up with their changing roles in industries. We offer more than 20,000 courses in 11 languages, and companies are also turning to a skills-based approach in place of a degree or pedigree to identify qualified talent, with more than 45% of the hires on LinkedIn explicitly using skills data to fill their roles. Finally, LinkedIn Marketing Solutions continues to be a leader in B2B digital advertising, helping companies deliver the right message to the right audience on a safe and trusted platform.

Speaker 32: In closing, I want to extend my deepest gratitude to our employees for their continued dedication to our mission, customers, and partners.

In closing, I want to extend my deepest gratitude to our employees for their continued dedication to our mission, customers, and partners.

Speaker 32: We will continue to pursue our long-term opportunities and innovation agenda with urgency, while also raising the bar on our operational excellence.

Satya Nadella: While the number of PCs shipped declined during the quarter, returning to pre-pandemic levels, usage intensity of Windows continues to be higher than pre-pandemic levels, with time spent per PC up nearly 10%. Monthly active devices also reached an all-time high this quarter, and for commercial customers, Windows 11 adoption continues to grow because of its differentiated security and productivity value proposition. We're also seeing growth in cloud-delivered Windows, with usage of Windows 365 and Azure Virtual Desktop up by over two-thirds year-over-year. Leaders in every industry, from Campari and Grant Thornton UK to Nutrien and Woolworths, are using cloud-delivered Windows, including more than 60% of the Fortune 500. Now on to security.

We will continue to pursue our long-term opportunities and innovation agenda with urgency, while also raising the bar on our operational excellence.

Speaker 32: With that, I'll hand it over to Amy. Skills are the new currency, and people are increasingly investing in their skill-building to keep up with their changing roles in industries. We offer more than 20,000 courses in 11 languages, and companies are also turning to a skills-based approach in place of degrees or pedigree to identify qualified talent, with more than 45% of the hires on LinkedIn explicitly using skills data to fill their roles.

Speaker 32: Thank you, Satya, and good afternoon everyone. I'd like to start by reiterating Satya's thoughts on the changing environment and our priorities, which underpin the decisions communicated in last week's announcement. The resulting Q2 charge negatively impacted gross margin by $152 million, operating income by $1.2 billion, and earnings per share by 12 cents.

Speaker 32: We offer more than 20,000 courses in 11 languages, and companies are also turning to a skills-based approach in place of degrees or pedigree to identify qualified talent, with more than 45% of the hires on LinkedIn explicitly using skills data to fill their roles. Finally, LinkedIn Marketing Solutions continues to be a leader in B2B digital advertising, helping companies deliver the right message to the right audience on a safe and trusted platform.

With that, I'll hand it over to Amy.

Thank you, Satya, and good afternoon everyone. I'd like to start by reiterating Satya's thoughts on the changing environment and our priorities, which underpin the decisions communicated in last week's announcement. The resulting Q2 charge negatively impacted gross margin by $152 million, operating income by $1.2 billion, and earnings per share by 12 cents.

Speaker 32: Our second-quarter revenue was $52.7 billion, up 2% and 7% in constant currency. When adjusted for the charge, gross margin dollars increased 2% and 8% in constant currency. Operating income decreased 3% and increased 6% in constant currency, and earnings per share were $2.32, which decreased by 6% and increased by 2% in constant currency. In our consumer business, the PC market was in line with our expectations, but execution challenges impacted our Surface business. Advertising spend declined slightly more than expected, which affected search and news advertising, as well as LinkedIn marketing solutions.

Our second-quarter revenue was $52.7 billion, up 2% and 7% in constant currency. When adjusted for the charge, gross margin dollars increased 2% and 8% in constant currency. Operating income decreased 3% and increased 6% in constant currency, and earnings per share were $2.32.

Speaker 32: Now on to advertising. Despite headwinds in the ad market, we continue to innovate across our first- and third-party advertising platforms. Our browser, Microsoft Edge, gained share for the seventh consecutive quarter. Bing continues to gain share in the United States, and daily users of our Start personalized content feed increased over 30% year-over-year. We are now empowering retailers and expanding our third-party inventory. Now on to advertising. Despite headwinds in the ad market, we continue to innovate across our first- and third-party portfolios. Our browser, Microsoft Edge, gained share for the seventh consecutive quarter. Bing continues to gain market share in the United States, and daily users of our Start personalized content feed increased over 30% year-over-year. We are now empowering retailers and expanding our third-party inventory.

Speaker 32: Which decreased by 6% and increased by 2% in constant currency. In our consumer business, the PC market was in line with our expectations, but execution challenges impacted our Surface business. Advertising spend declined slightly more than expected, which affected search and news advertising, as well as LinkedIn marketing solutions. Now on to advertising. Despite headwinds in the ad market, we continue to innovate across our first- and third-party portfolios. Our browser, Microsoft Edge, gained share for the seventh consecutive quarter. Bing continues to gain market share in the United States, and daily users of our Start personalized content feed increased over 30% year-over-year. We are now empowering retailers and expanding our third-party inventory.

Which decreased by 6% and increased by 2% in constant currency. In our consumer business, the PC market was in line with our expectations, but execution challenges impacted our Surface business. Advertising spend declined slightly more than expected, which affected search and news advertising, as well as LinkedIn marketing solutions.

Satya Nadella: Over the past 12 months, our security business surpassed $20 billion in revenue as we help customers protect their digital estate across clouds and endpoint platforms. We're the only company with integrated end-to-end tools spanning identity, security, compliance, device management, and privacy, informed and trained on over 65 trillion signals each day. We're taking share across all the major categories we serve. Customers are consolidating on our security stack in order to reduce risk, complexity, and cost. The number of organizations with four or more workloads increased over 40% year over year. UK retailer Fraser Group, for example, consolidated from 10 security vendors to just Microsoft. Roku moved identity and access management to the cloud with Azure Active Directory.

Speaker 32: In our commercial business, we delivered strong growth in line with our expectations. However, as you heard from Satya, we are seeing customers exercise caution in this environment, and we observed results weakening through December. We observed moderate consumption growth in Azure and lower-than-expected growth in new business across standalone Office 365, EMS, and Windows commercial products that are sold outside the Microsoft 365 suite.

In our commercial business, we delivered strong growth in line with our expectations. However, as you heard from Satya, we are seeing customers exercise caution in this environment, and we observed results weakening through December.

Speaker 32: Now on to advertising. Despite headwinds in the ad market, we continue to innovate across our first- and third-party advertising platforms. Our browser, Microsoft Edge, gained share for the seventh consecutive quarter. Bing continues to gain share in the United States, and daily users of our Start personalized content feed increased over 30% year-over-year. We are now empowering retailers and expanding our third-party inventory. In our commercial business, we delivered strong growth in line with our expectations. However, as you heard from Satya, we are seeing customers exercise caution in this environment, and we observed results weakening through December. We observed moderate consumption growth in Azure and lower-than-expected growth in new business across standalone Office 365, EMS, and Windows commercial products that are sold outside the Microsoft 365 suite.

Speaker 32: With PromoteIQ, we are building a complete omnichannel media platform for companies like Australian retailer, Endeavor, as well as Canada's Hudson's Bay. And Globo, the largest Brazilian TV broadcaster, chose Xandr to launch a new media buying platform in that market. With PromoteIQ, we are building a complete omnichannel media platform for companies like Australian retailer, Endeavor, as well as Canada's Hudson's Bay and Globo. The largest Brazilian TV broadcasters chose Xandr to launch a new media buying platform in that market. With PromoteIQ, we are building a complete omnichannel media platform for companies like Australian retailer, Endeavor, as well as Canada's Hudson's Bay and Global. The largest Brazilian TV broadcasters chose Xandr to launch a new media buying platform in that market.

Speaker 32: With PromoteIQ, we are building a complete omnichannel media platform for companies like Australian retailer, Endeavor, as well as Canada's Hudson's Bay and Globo. The largest Brazilian TV broadcasters chose Xandr to launch a new media buying platform in that market. With PromoteIQ, we are building a complete omnichannel media platform for companies like Australian retailer, Endeavor, as well as Canada's Hudson's Bay and Global. The largest Brazilian TV broadcasters chose Xandr to launch a new media buying platform in that market.

We observed moderate consumption growth in Azure and lower-than-expected growth in new business across standalone Office 365, EMS, and Windows commercial products that are sold outside the Microsoft 365 suite.

Speaker 32: From a geographic perspective, we witnessed strong execution in many regions around the world. However, performance in the US was weaker than expected. Importantly, we continued to see share gains in areas such as data and AI, dynamics, teams, security, and edge.

From a geographic perspective, we witnessed strong execution in many regions around the world. However, performance in the US was weaker than expected. Importantly, we continued to see share gains in areas such as data and AI, dynamics, teams, security, and edge.

Speaker 32: Now on to gaming. In gaming, we continue to pursue our ambition to give players more choice to play great games wherever, whenever, and however they want. We saw new highs for Game Pass subscriptions, game streaming hours, and monthly active devices, and monthly active users surpassed a record 120 million during the quarter. We continue to invest in adding value to Game Pass. This quarter, we partnered with Riot Games to make the company's PC and mobile games, along with premium content, available to subscribers. Now, on to gaming. In gaming, we continue to pursue our ambition to give players more choice to play great games wherever, whenever, and however they want.

Speaker 32: We saw new highs for Game Pass subscriptions, game streaming hours, and monthly active devices, and monthly active users surpassed a record 120 million during the quarter. We continue to invest in adding value to Game Pass. This quarter, we partnered with Riot Games to make the company's PC and mobile games, along with premium content, available to subscribers. Now, on to gaming. In gaming, we continue to pursue our ambition to give players more choice to play great games wherever, whenever, and however they want. We saw new highs for Game Pass subscriptions, game streaming hours, and monthly active devices, and monthly active users surpassed a record 120 million during the quarter. We continue to invest in adding value to Game Pass. This quarter, we partnered with Riot Games to make the company's PC and mobile games, along with premium content, available to subscribers.

Speaker 32: Commercial bookings increased by 7 percent and 4 percent in constant currency, lower than expected. Consistent execution across our renewal sales motions, including strong recapture rates and growth in Azure commitments, was partially offset by a high prior year comparable and the slowdown in growth of new standalone business noted earlier.

Satya Nadella: And Estella Pharma, Ferrovial, and the University of Toronto all switched to Microsoft Sentinel because of our integrated XDR and SIM capabilities. Now on to LinkedIn. People and companies continue to look to LinkedIn to connect, learn, sell, and get hired. We once again saw record engagement among our more than 900 million members. Three members are signing up every second, and over 80% of these members are from outside the United States.

Commercial bookings increased by 7 percent and 4 percent in constant currency, lower than expected. Consistent execution across our renewal sales motions, including strong recapture rates and growth in Azure commitments, was partially offset by a high prior year comparable.

Speaker 32: Commercial remaining performance obligation increased 29% to 26% in constant currency to $189 billion. Roughly 45% will be recognizing revenue in the next 12 months at 24% year over year. The remaining portion by the slowdown in growth of new standalone business noted earlier. Commercial remaining performance obligation increased 29% to 26% in constant currency to $189 billion. Roughly 45% will be recognizing revenue in the next 12 months at 24% year over year. The remaining portion

by the slowdown in growth of new standalone business noted earlier. Commercial remaining performance obligation increased 29% to 26% in constant currency to $189 billion. Roughly 45% will be recognizing revenue in the next 12 months of 24% year over year. The remaining portion

Speaker 32: And finally, we are energized by our upcoming lineup of AAA game launches, including exciting new titles from ZeniMax and Xbox Game Studios, and we'll be sharing details and game play at our showcase tomorrow. And finally, we are energized by our upcoming lineup of AAA game launches, including exciting new titles from ZeniMax and Xbox Game Studios, and we'll be sharing details and game play at our showcase tomorrow.

Satya Nadella: And as the members come to the platform to find and share professional knowledge and expertise, newsletter creation was up 10x year over year. Skills are the new currency, and people are increasingly investing in their skill building to keep up with their changing roles in the industry. We offer more than 20,000 courses in 11 languages, and companies are also turning to a skills-based approach in place of degree or pedigree to identify qualified talent, with more than 45% of the hires on LinkedIn explicitly using skills data to fill their role. Finally, LinkedIn Marketing Solutions continues to be a leader in B2B digital advertising, helping companies deliver the right message to the right audience on a safe and trusted platform.

Speaker 32: This will be recognized beyond the next 12 months and increased 32%. Our annuity mix increased two points year over year to 96%. In closing, I want to extend my deepest gratitude to our employees for their continued dedication to our mission, customers, and partners. We will continue to pursue our long-term opportunity and innovation agenda with urgency while also raising the bar on our operational excellence. With that, I'll hand it over to Amy. In closing, I want to extend my deepest gratitude to our employees for their continued dedication to our mission, customers, and partners. We will continue to pursue our long-term opportunity and innovation agenda with urgency while also raising the bar on our operational excellence. With that, I'll hand it over to Amy.

This will be recognized beyond the next 12 months, increased 32%. Our annuity mix increased two points year over year to 96%.

Speaker 32: FX reduced the total company revenue by five points, in line with expectations. At a segment level, FX lowered the productivity and business processes revenue growth by six points, one point favorable to expectations. The FX impact on intelligent cloud and more personal computing has been both in line with expectations. In closing, I want to extend my deepest gratitude to our employees for their continued dedication to our mission, customers, and partners. We will continue to pursue our long-term opportunity and innovation agenda with urgency while also raising the bar on our operational excellence. With that, I'll hand it over to Amy.

Speaker 32: In closing, I want to extend my deepest gratitude to our employees for their continued dedication to our mission, customers, and partners. We will continue to pursue our long-term opportunity and innovation agenda with urgency while also raising the bar on our operational excellence. With that, I'll hand it over to Amy. In closing, I want to extend my deepest gratitude to our employees for their continued dedication to our mission, customers, and partners. We will continue to pursue our long-term opportunity and innovation agenda with urgency while also raising the bar on our operational excellence. With that, I'll hand it over to Amy.

FX reduced the total company revenue by five points, in line with expectations. At a segment level, FX lowered the productivity and business processes revenue growth by six points, one point favorable to expectations. The FX impact on intelligent cloud and more personal computing was both in line with expectations.

Speaker 32: Additionally, FX decreased both COGS and operating expense growth by 2 points, 1 point unfavorable to expectations.

Speaker 32: Additionally, FX decreased both COGS and operating expense growth by 2 points, 1 point unfavorable to expectations. Thank you, Satya, and good afternoon, everyone. I'd like to start by reiterating Satya's thoughts on the changing environment and our priorities, which underpin the decisions communicated in last week's announcement. The resulting Q2 charge negatively impacted gross margin by $152 million, operating income by $1.2 billion, and earnings per share by $0.12. Thank you, Satya, and good afternoon, everyone. I'd like to start by reiterating Satya's thoughts on the changing environment and our priorities, which underpin the decisions communicated in last week's announcement.

Speaker 32: Additionally, FX decreased both COGS and operating expense growth by 2 points, 1 point unfavorable to expectations.

Additionally, FX decreased both COGS and operating expense growth by 2 points, 1 point unfavorable to expectations.

Speaker 32: The resulting Q2 charge negatively impacted gross margin by $152 million, operating income by $1.2 billion, and earnings per share by $0.12. Microsoft Cloud revenue was $27.1 billion and grew 22% to 29% in constant currency, ahead of expectations. Microsoft Cloud's gross margin percentage increased roughly 2 points per year to 72%, a point better than expected, driven by lower energy costs. Thank you, Satya, and good afternoon, everyone. I'd like to start by reiterating Satya's thoughts on the changing environment and our priorities, which underpin the decisions communicated in last week's announcement. The resulting Q2 charge negatively impacted gross margin by $152 million, operating income by $1.2 billion, and earnings per share by $0.12.

Speaker 32: Thank you, Satya, and good afternoon, everyone. I'd like to start by reiterating Satya's thoughts on the changing environment and our priorities, which underpin the decisions communicated in last week's announcement. The resulting Q2 charge negatively impacted gross margin by $152 million, operating income by $1.2 billion, and earnings per share by $0.12. Our second quarter revenue was $52.7 billion, up 2% and 7% in constant currency. When adjusted for the charge, gross margin dollars increased 2% and 8% in constant currency, operating income decreased 3% and increased 6% in constant currency, and earnings per share were $2.32, which decreased 6% and increased 2% in constant currency. Excluding the impact of the change in accounting estimates for useful lives, Microsoft Cloud's gross margin percentage decreased roughly one point, primarily driven by a sales mix shift to Azure.

Microsoft Cloud revenue was $27.1 billion and grew 22% to 29% in constant currency, ahead of expectations. Microsoft Cloud's gross margin percentage increased roughly 2 points per year to 72%, a point better than expected, driven by lower energy costs.

Satya Nadella: Now on to advertising. Despite headwinds in the ad market, we continue to innovate across our first- and third-party advertising platforms. Our browser, Microsoft Edge, gained share for the seventh consecutive quarter, Bing continues to gain share in the United States, and daily users of our stock personalized content feed increased over 30% year over year. We are now empowering retailers and expanding our third-party inventories. With PromoteIQ, we're building a complete omni-channel media platform for companies like Australian retailer Endeavor, as well as Canada's Hudson's Bay and Globo, the largest Brazilian TV broadcasters, chose Zander to launch a new media buying platform in that market. Now on to gaming.

Speaker 32: Excluding the impact of the change in accounting estimates for useful lives, Microsoft Cloud's gross margin percentage decreased roughly one point, primarily driven by a sales mix shift to Azure. Our second quarter revenue was $52.7 billion, up 2% and 7% in constant currency. When adjusted for the charge, gross margin dollars increased 2% and 8% in constant currency; operating income decreased 3% and increased 6% in constant currency; and earnings per share were $2.32, which decreased 6% and increased 2% in constant currency. Our second quarter revenue was $52.7 billion, up 2% and 7% in constant currency. When adjusted for the charge, gross margin dollars increased 2% and 8% in constant currency; operating income decreased 3% and increased 6% in constant currency; and earnings per share were $2.32, which decreased 6% and increased 2% in constant currency.

Speaker 32: Our second quarter revenue was $52.7 billion, up 2% and 7% in constant currency. When adjusted for the charge, gross margin dollars increased 2% and 8% in constant currency; operating income decreased 3% and increased 6% in constant currency; and earnings per share were $2.32, which decreased 6% and increased 2% in constant currency. Our second quarter revenue was $52.7 billion, up 2% and 7% in constant currency. When adjusted for the charge, gross margin dollars increased 2% and 8% in constant currency; operating income decreased 3% and increased 6% in constant currency; and earnings per share were $2.32, which decreased 6% and increased 2% in constant currency.

Excluding the impact of the change in accounting estimates for useful lives, Microsoft Cloud's gross margin percentage decreased roughly one point, primarily driven by a sales mix shift to Azure.

Speaker 32: Company gross margin percentage was 67%, excluding the impact of the change in accounting estimate. Gross margin percentage decreased roughly 2 points driven by a lower mix of Windows OEM revenue and a sales mix shift from licensing to cloud. Operating expense, when adjusted for the Q2 charge, increased 11% and 13% in constant currency, approximately $500 million lower than expected. Operating expense growth was driven by investments in cloud engineering, the Nuance acquisition, and LinkedIn. At the total company level, headcount ended December 19% higher than a year ago. In our consumer business, the PC market was in line with our expectations, but execution challenges impacted our Surface business.

Company gross margin percentage was 67%, excluding the impact of the change in accounting estimate. Gross margin percentage decreased roughly 2 points driven by a lower mix of Windows OEM revenue and sales mix shift from licensing to cloud. Operating expense when adjusted for the Q2 charge.

Speaker 32: Advertising spend declined slightly more than expected, which impacted search and news advertising and LinkedIn Marketing Solutions. However, in our commercial business, we delivered strong growth in line with our expectations. However, as you heard from Satya, we are seeing customers exercise caution in this environment, and we saw results weaken through December. In our consumer business, the PC market was in line with our expectations, but execution challenges impacted our Surface business. Advertising spend declined slightly more than expected, which impacted search and news advertising and LinkedIn Marketing Solutions. In our commercial business, we delivered strong growth in line with our expectations.

Speaker 32: In our consumer business, the PC market was in line with our expectations, but execution challenges impacted our Surface business. Advertising spend declined slightly more than expected, which impacted search and news advertising and LinkedIn Marketing Solutions. In our commercial business, we delivered strong growth in line with our expectations. However, as you heard from Satya, we are seeing customers exercise caution in this environment, and we saw results weaken through December. In our consumer business, the PC market was in line with our expectations, but execution challenges impacted our Surface business. Advertising spend declined slightly more than expected, which impacted search and news advertising and LinkedIn Marketing Solutions. In our commercial business, we delivered strong growth in line with our expectations. However, as you heard from Satya, we are seeing customers exercise caution in this environment, and we saw results weaken through December.

Speaker 32: However, as you heard from Satya, we are seeing customers exercise caution in this environment, and we saw results weaken through December. In our consumer business, the PC market was in line with our expectations, but execution challenges impacted our Surface business. Advertising spend declined slightly more than expected, which impacted search and news advertising and LinkedIn Marketing Solutions. In our commercial business, we delivered strong growth in line with our expectations. However, as you heard from Satya, we are seeing customers exercise caution in this environment, and we saw results weaken through December. We saw moderated consumption growth in Azure and lower-than-expected growth in new business across the stand-alone Office 365, EMS, and Windows commercial products that are sold outside the Microsoft 365 suite.

Speaker 32: In our commercial business, we delivered strong growth in line with our expectations. However, as you heard from Satya, we are seeing customers exercise caution in this environment, and we saw results weaken through December. We saw moderated consumption growth in Azure and lower-than-expected growth in new business across the stand-alone Office 365, EMS, and Windows commercial products that are sold outside the Microsoft 365 suite.

Increased 11% and 13% in constant currency, approximately $500 million lower than expected. Operating expense growth was driven by investments in cloud engineering, the Nuance acquisition, and LinkedIn. At the total company level, headcount ended December 19% higher than a year ago.

Satya Nadella: In gaming, we continue to pursue our ambition to give players more choice to play great games wherever, whenever, and however they want. We saw new highs for Game Pass subscriptions, game streaming hours, and monthly active devices. And monthly active users surpassed a record 120 million during the quarter. We continue to invest in adding value to Game Pass. This quarter, we partnered with Riot Games to make the company's PC and mobile games, along with premium content, available to subscribers. And finally, we are energized by our upcoming lineup of AAA game launches, including exciting new titles from ZeniMax and Xbox Game Studios. And we'll be sharing details and gameplay at our showcase tomorrow.

Speaker 32: Sequential headcount growth was less than 1%, and year-over-year growth included roughly six points from the Nuance and Zander acquisitions, which closed in last Q3 and Q4, respectively. Adjusted for the charge, operating margins decreased roughly 2 points throughout the year to 41 percent. Excluding the impact of the change in accounting estimate, operating margins declined roughly 4 points, primarily driven by unfavorable FX impacts, as well as a lower mix of OEM revenue. Now, for our segment results.

Sequential headcount growth was less than 1%. Year-over-year growth included roughly six points from the Nuance and Zander acquisitions, which closed last Q3 and Q4, respectively.

Adjusted for the charge, operating margins decreased roughly 2 points throughout the year to 41 percent. Excluding the impact of the change in accounting estimate, operating margins declined roughly 4 points, primarily driven by unfavorable FX impacts, as well as a lower mix of OEM revenue. Now, for our segment results.

Speaker 32: We saw moderated consumption growth in Azure and lower-than-expected growth in new business across the stand-alone Office 365, EMS, and Windows commercial products that are sold outside the Microsoft 365 suite. We saw moderated consumption growth in Azure and lower-than-expected growth in new business across the stand-alone Office 365, EMS, and Windows commercial products that are sold outside the Microsoft 365 suite. Revenue from productivity and business processes was $17 billion and grew 7% and 13% in constant currency, in line with expectations when excluding the favorable FX impact noted earlier. From a geographic perspective, we saw strong execution in many regions around the world.

Speaker 32: We saw moderated consumption growth in Azure and lower-than-expected growth in new business across the stand-alone Office 365, EMS, and Windows commercial products that are sold outside the Microsoft 365 suite. Revenue from productivity and business processes was $17 billion and grew 7% and 13% constant currency in line with expectations when excluding the favorable FX impact noted earlier. From a geographic perspective, we saw strong execution in many regions around the world. However, performance in the U.S. was weaker than expected. Importantly, we continue to see share gains in areas such as data and AI, Dynamics, Teams, Security, and Edge. However, commercial bookings increased 7% and 4% in constant currency, lower than expected. Consistent execution across our renewal sales motions, including strong recapture rates, and growth in Azure commitments on a high prior year comparable were partially offset by the slowdown in growth of new stand-alone business noted earlier.

Speaker 32: However, performance in the U.S. was weaker than expected. However, importantly, we continue to see share gains in areas such as data and AI, Dynamics, Teams, Security, and Edge. Commercial bookings increased 7% and 4% in constant currency, lower than expected. Consistent execution across our renewal sales motions, including strong recapture rates, and growth in Azure commitments on a high prior year comparable were partially offset by the slowdown in growth of new stand-alone business noted earlier.

Speaker 32: From a geographic perspective, we saw strong execution in many regions around the world. However, performance in the U.S. was weaker than expected. Importantly, we continue to see share gains in areas such as data and AI, Dynamics, Teams, Security, and Edge. However, commercial bookings increased 7% and 4% in constant currency, lower than expected. Consistent execution across our renewal sales motions, including strong recapture rates, and growth in Azure commitments on a high prior year comparable were partially offset by the slowdown in growth of new stand-alone business noted earlier.

Speaker 32: Adjusted for the charge, operating margins decreased roughly 2 points throughout the year to 41 percent. Excluding the impact of the change in accounting estimate, operating margins declined roughly 4 points, primarily driven by unfavorable FX impacts, as well as a lower mix of OEM revenue. Now, for our segment results.

Revenue from productivity and business processes was $17 billion and grew 7% and 13% constant currency in line with expectations when excluding the favorable FX impact noted earlier.

Speaker 32: From a geographic perspective, we saw strong execution in many regions around the world. However, performance in the U.S. was weaker than expected. Importantly, we continued to see share gains in areas such as data and AI, Dynamics, Teams, Security, and Edge. However, commercial bookings increased 7% and 4% in constant currency, lower than expected. Consistent execution across our renewal sales motions, including strong recapture rates, and growth in Azure commitments on a high prior year comparable were partially offset by the slowdown in growth of new stand-alone business noted earlier. Office commercial revenue grew 7% and 14% in constant currency.

Speaker 32: Office commercial revenue grew 7% and 14% in constant currency, and Office 365 commercial revenue increased 11% and 18% in constant currency, slightly better than expected with healthy renewal execution and ARPU growth as E5 momentum remains strong. Paid Office 365 commercial seats grew 12 percent year over year, with installed base expansion across all workloads and customer segments.

Satya Nadella: In closing, I want to extend my deepest gratitude to our employees for their continued dedication to our mission, customers, and partners. We will continue to pursue our long-term opportunity and innovation agenda with urgency while also raising the bar on our operational excellence. With that, I'll hand it over to Amy.

Office commercial revenue grew 7% and 14% in constant currency. Office 365 commercial revenue increased 11% and 18% in constant currency, slightly better than expected with healthy renewal execution and ARPU growth as E5 momentum remains strong.

Speaker 32: Office 365 commercial revenue increased 11% and 18% in constant currency, slightly better than expected with healthy renewal execution and ARPU growth as E5 momentum remains strong. Paid Office 365 commercial seats grew 12 percent year over year, with installed base expansion across all workloads and customer segments. Growth was driven by our small and medium businesses and frontline worker offerings, although we saw some impact from the slowdown in growth of new business mentioned earlier. Commercial remaining performance obligation increased 29% and 26% in constant currency to $189 billion. Roughly 45% of revenue will be recognized in the next 12 months, up 24% year-over-year.

Amy E. Hood: Thank you, Satya, and good afternoon, everyone. I'd like to start by reiterating Satya's thoughts on the changing environment and our priorities, which underpin the decisions communicated in last week's announcement. The resulting Q2 charge negatively impacted gross margin by $152 million, operating income by $1.2 billion, and earnings per share by 12 cents. Our second quarter revenue was $52.7 billion, up 2% and 7% in constant currency. When adjusted for the charge, gross margin dollars increased 2% and 8% in constant currency. Operating income decreased 3% and increased 6% in constant currency.

Speaker 32: The remaining portion, which will be recognized beyond the next 12 months, increased 32%. Our annuity mix also increased 2 points year-over-year to 96%. FX decreased total company revenue by 5 points, in line with expectations. At a segment level, FX decreased Productivity and Business Processes revenue growth by 6 points, 1 point favorable to expectations. FX impact on Intelligent Cloud and More Personal Computing was both in line with expectations. Additionally, FX decreased both COGS and operating expense growth by 2 points, 1 point unfavorable to expectations.

Paid Office 365 commercial seats grew 12 percent year over year, with installed base expansion across all workloads and customer segments.

Speaker 32: Growth was driven by our small and medium businesses and frontline worker offerings, although we saw some impact from the slowdown in growth of new business mentioned earlier. Commercial remaining performance obligation increased 29% and 26% in constant currency to $189 billion. Roughly 45% will be recognized in revenue in the next 12 months, up 24% year-over-year. The remaining portion, which will be recognized beyond the next 12 months, increased 32%. Our annuity mix increased 2 points year-over-year to 96%. FX decreased total company revenue by 5 points, in line with expectations. At a segment level, FX decreased Productivity and Business Processes revenue growth by 6 points, 1 point favorable to expectations.

See, growth was driven by our small and medium businesses and frontline worker offerings, although we saw some impact from the slowdown in growth of new business mentioned earlier.

Speaker 32: FX impact on Intelligent Cloud and More Personal Computing was both in line with expectations. Additionally, FX decreased both COGS and operating expense growth by 2 points, 1 point unfavorable to expectations. Office consumer revenue declined 2 percent and increased 3 percent in constant currency, with continued momentum in Microsoft 365 subscriptions, which grew 12 percent to 63.2 million, partially offset by declines in our transactional business. LinkedIn revenue increased 10 percent and 14 percent in constant currency. SaiyanazForms Hoosier Apple Frequently.

Speaker 32: Office consumer revenue declined 2 percent and increased 3 percent in constant currency, with continued momentum in Microsoft 365 subscriptions, which grew 12 percent to 63.2 million, partially offset by declines in our transactional business. LinkedIn revenue increased 10 percent and 14 percent in constant currency. SaiyanazForms Hoosier Apple Frequently. Commercial remaining performance obligation increased 29% to 26% in constant currency to $189 billion. Roughly 45% will be recognized in revenue in the next 12 months, up 24% year-over-year. The remaining portion, which will be recognized beyond the next 12 months, increased 32%. Our annuity mix increased 2 points year-over-year to 96%.

Speaker 32: The commercial remaining performance obligation increased 29% to 26% in constant currency to $189 billion. Roughly 45% will be recognized in revenue in the next 12 months, up 24% year-over-year. The remaining portion, which will be recognized beyond the next 12 months, increased 32%. Our annuity mix also increased 2 points year-over-year to 96%. FX decreased total company revenue by 5 points, in line with expectations. At a segment level, FX decreased Productivity and Business Processes revenue growth by 6 points, 1 point favorable to expectations. FX impact on Intelligent Cloud and More Personal Computing was both in line with expectations. Additionally, FX decreased both COGS and operating expense growth by 2 points, 1 point unfavorable to expectations.

Office consumer revenue declined 2 percent and increased 3 percent in constant currency, with continued momentum in Microsoft 365 subscriptions, which grew 12 percent to 63.2 million, partially offset by declines in our transactional business. LinkedIn revenue increased 10 percent and 14 percent in constant currency. SaiyanazForms Hoosier Apple Frequently.

Speaker 32: FX decreased total company revenue by 5 points, in line with expectations. At a segment level, FX decreased Productivity and Business Processes revenue growth by 6 points, 1 point favorable to expectations. FX impact on Intelligent Cloud and More Personal Computing was both in line with expectations. Additionally, FX decreased both COGS and operating expense growth by 2 points, 1 point unfavorable to expectations.

Speaker 32: Driven by growth and talent solutions, partially offset by weakness in marketing solutions from the advertising trends noted earlier, Dynamics revenue grew by 13% and 20% in constant currency, driven by Dynamics 365, which grew by 21% and 29% in constant currency. Segment gross margin dollars increased by 8% and 16% in constant currency. Microsoft Cloud revenue was $27.1 billion and grew 22% and 29% in constant currency, ahead of expectations. Microsoft Cloud gross margin percentage increased roughly 2 points year-over-year to 72%, a point better than expected, driven by lower energy costs. Excluding the impact of the change in accounting estimate for useful lives, Microsoft Cloud gross margin percentage decreased roughly 1 point, primarily driven by a sales mix shift to Azure.

Driven by growth and talent solutions, partially offset by weakness in marketing solutions from the advertising trends noted earlier. Dynamics revenue grew by 13% and 20% in constant currency, driven by Dynamics 365, which grew by 21%, 29% in constant currency. Segment gross margin dollars increased by 8% and 16% in constant currency.

Amy E. Hood: And earnings per share was $2.32, which decreased 6% and increased 2% in constant currency. In our consumer business, the PC market was in line with our expectations, but execution challenges impacted our surface business. Advertising spend declined slightly more than expected, which impacted search and news advertising and LinkedIn marketing solutions.

Speaker 32: Microsoft Cloud revenue was $27.1 billion and grew 22% and 29% in constant currency, ahead of expectations. Microsoft Cloud gross margin percentage increased roughly 2 points year-over-year to 72%, a point better than expected, driven by lower energy costs. Excluding the impact of the change in accounting estimate for useful lives, Microsoft Cloud gross margin percentage decreased roughly 1 point, primarily driven by a sales mix shift to Azure. Q2 charge. Operating income increased 6% and 17% in constant currency as the three points of favorable impact through the change in accounting estimate were offset by three points of unfavorable impact from the Q2 charge noted earlier.

Speaker 32: Microsoft Cloud revenue was $27.1 billion and grew 22% and 29% in constant currency, ahead of expectations. Microsoft Cloud gross margin percentage increased roughly 2 points year-over-year to 72%, a point better than expected, driven by lower energy costs. Excluding the impact of the change in accounting estimate for useful lives, Microsoft Cloud gross margin percentage decreased roughly 1 point, primarily driven by a sales mix shift to Azure. Microsoft Cloud revenue was $27.1 billion and grew 22% and 29% in constant currency, ahead of expectations. Microsoft Cloud's gross margin percentage increased roughly 2 points year-over-year to 72%, a point better than expected, driven by lower energy costs.

Speaker 32: Next, the intelligent cloud segment.

Speaker 32: Excluding the impact of the change in accounting estimate for useful lives, Microsoft Cloud gross margin percentage decreased roughly 1 point, primarily driven by a sales mix shift to Azure. Q2 charge. Operating income increased 6% and 17% in constant currency as the three points of favorable impact through the change in accounting estimate were offset by three points of unfavorable impact from the Q2 charge noted earlier. Next, the intelligent cloud segment. Microsoft Cloud revenue was $27.1 billion and grew 22% and 29% in constant currency, ahead of expectations. Microsoft Cloud gross margin percentage increased roughly 2 points year-over-year to 72%, a point better than expected, driven by lower energy costs. Excluding the impact of the change in accounting estimate for useful lives, Microsoft Cloud gross margin percentage decreased roughly 1 point, primarily driven by a sales mix shift to Azure.

Amy E. Hood: In our commercial business, we delivered strong growth in line with our expectations. However, as you heard from Satya, we are seeing customers exercise caution in this environment, and we saw results weaken through December. We saw moderated consumption growth in Azure and lower than expected growth in new business across the standalone Office 365, EMS, and Windows commercial products that are sold outside the Microsoft 365 suite. From a geographic perspective, we saw strong execution in many regions around the world. However, performance in the U.S. was weaker than expected.

Q2 charge. Operating income increased 6% and 17% in constant currency as the three points of favorable impact through the change in accounting estimate were offset by three points of unfavorable impact from the Q2 charge noted earlier. Next, the intelligent cloud segment.

Speaker 32: Revenue was $21.5 billion, increasing 18% and 24% in constant currency, in line with expectations. Overall, server products and cloud services revenue increased 20 percent and 26 percent in constant currency. Azure and other cloud-services revenue grew 31 percent and 38 percent in constant currency. However, as noted earlier, growth continued to moderate, particularly in December. Company gross margin percentage was 67%. Excluding the impact of the change in accounting estimate, gross margin percentage decreased roughly 2 points, driven by a lower mix of Windows OEM revenue and a sales mix shift from licensing to cloud. Operating expense, when adjusted for the Q2 charge, increased 11% and 13% in constant currency, about $500 million lower than expected. Operating expense growth was driven by investments in cloud engineering, the Nuance acquisition, and LinkedIn.

Revenue was $21.5 billion, increasing 18% and 24% in constant currency, in line with expectations.

Speaker 32: Overall, server products and cloud services revenue increased 20 percent and 26 percent in constant currency. Azure and other cloud services revenue grew 31 percent and 38 percent in constant currency. As noted earlier, growth continued to moderate, particularly in December. The company's gross margin percentage was 67%. Excluding the impact of the change in accounting estimate, gross margin percentage decreased roughly 2 points, driven by a lower mix of Windows OEM revenue and a sales mix shift from licensing to cloud. Operating expense, when adjusted for the Q2 charge, increased 11% and 13% in constant currency, about $500 million lower than expected. Operating expense growth was driven by investments in cloud engineering, the Nuance acquisition, and LinkedIn.

Overall, server products and cloud services revenue increased 20 percent and 26 percent in constant currency. Azure and other cloud-services revenue grew 31 percent and 38 percent in constant currency. As noted earlier, growth continued to moderate, particularly in December.

Speaker 32: Company gross margin percentage was 67%. Excluding the impact of the change in accounting estimate, gross margin percentage decreased roughly 2 points, driven by a lower mix of Windows OEM revenue and a sales mix shift from licensing to cloud. Operating expense, when adjusted for the Q2 charge, increased 11% and 13% in constant currency, about $500 million lower than expected. Operating expense growth was driven by investments in cloud engineering, the Nuance acquisition, and LinkedIn. We exited the quarter with Azure Constant Currency growth in the mid-30s. In our per-user business, the enterprise mobility and security installed base grew by 16 percent to over 241 million seats, with impact from the slowdown and growth of new businesses noted earlier.

Speaker 32: Company gross margin percentage was 67%. Excluding the impact of the change in accounting estimate, gross margin percentage decreased roughly 2 points, driven by a lower mix of Windows OEM revenue and a sales mix shift from licensing to cloud. Operating expense, when adjusted for the Q2 charge, increased 11% and 13% in constant currency, about $500 million lower than expected. Operating expense growth was driven by investments in cloud engineering, the Nuance acquisition, and LinkedIn. Company gross margin percentage was 67%. Excluding the impact of the change in accounting estimate, gross margin percentage decreased roughly 2 points, driven by a lower mix of Windows OEM revenue and a sales mix shift from licensing to cloud.

Amy E. Hood: Importantly, we continued to see share gains in areas such as data and AI, dynamics, teams, security, and edge. However, commercial bookings increased 7% and 4% in constant currency, lower than expected. Consistent execution across our renewal sales motions, including strong recapture rates and growth in Azure commitments on a high prior year comparable, were partially offset by the slowdown in growth of new standalone business noted earlier. Commercial remaining performance obligation increased 29% to 26% in constant currency to $189 billion. Roughly 45% will be recognized in revenue in the next 12 months, up 24% year-over-year. The remaining portion, which will be recognized beyond the next 12 months, increased 32%. Our annuity mix increased two points year-over-year to 96%, while FX decreased total company revenue by five points, in line with expectations.

Speaker 32: We exited the quarter with Azure Constant Currency growth in the mid-30s. In our per-user business, the enterprise mobility and security installed base grew by 16 percent to over 241 million seats, with impact from the slowdown and growth of new businesses noted earlier. In our on-premises server business, revenue decreased 2 percent and increased 2 percent in constant currency, with continued hybrid demand offset by weakness in transactional licensing. Enterprise services revenue grew 2 percent and 7 percent in constant currency.

We exited the quarter with Azure Constant Currency growth in the mid-30s. In our per-user business, the enterprise mobility and security installed base grew by 16 percent to over 241 million seats, with impact from the slowdown and growth of new businesses noted earlier.

Speaker 32: In our on-premises server business, revenue decreased 2 percent and increased 2 percent in constant currency, with continued hybrid demand offset by weakness in transactional licensing. Enterprise services revenue grew 2 percent and 7 percent in constant currency. At a total company level, headcount ended December 19% higher than a year ago, although sequential headcount growth was less than 1%. Year-over-year growth included roughly 6 points from the Nuance and Xandr acquisitions, which closed in last Q3 and Q4, respectively. Adjusted for the charge, operating margins decreased roughly 2 points year-over-year to 41%. Excluding the impact of the change in accounting estimate, operating margins declined roughly 4 points, primarily driven by an unfavorable FX impact as well as a lower mix of OEM revenue.

Speaker 32: Operating expense, when adjusted for the Q2 charge, increased 11% and 13% in constant currency, about $500 million lower than expected. Operating expense growth was driven by investments in cloud engineering, the Nuance acquisition, and LinkedIn. We exited the quarter with Azure Constant Currency growth in the mid-30s. In our per-user business, the enterprise mobility and security installed base grew by 16 percent to over 241 million seats, with impact from the slowdown and growth of new businesses noted earlier. In our on-premises server business, revenue decreased 2 percent and increased 2 percent in constant currency, with continued hybrid demand offset by weakness in transactional licensing.

Speaker 32: Enterprise services revenue grew 2 percent and 7 percent in constant currency. At a total company level, headcount ended December 19% higher than a year ago. Sequential headcount growth was less than 1%, and year-over-year growth included roughly 6 points from the Nuance and Xandr acquisitions, which closed in last Q3 and Q4, respectively. Adjusted for the charge, operating margins decreased roughly 2 points year-over-year to 41%. Excluding the impact of the change in accounting estimate, operating margins declined roughly 4 points, primarily driven by an unfavorable FX impact as well as a lower mix of OEM revenue.

Speaker 32: At a total company level, headcount ended December 19% higher than a year ago, although sequential headcount growth was less than 1%. Year-over-year growth included roughly 6 points from the Nuance and Xandr acquisitions, which closed in last Q3 and Q4, respectively. Adjusted for the charge, operating margins decreased roughly 2 points year-over-year to 41%. Excluding the impact of the change in accounting estimate, operating margins declined roughly 4 points, primarily driven by an unfavorable FX impact as well as a lower mix of OEM revenue. At a total company level, headcount ended December 19% higher than a year ago. The sequential headcount growth was less than 1%.

In our on-premises server business, revenue decreased 2 percent and increased 2 percent in constant currency, with continued hybrid demand offset by weakness in transactional licensing. Enterprise services revenue grew 2 percent and 7 percent in constant currency.

Speaker 32: Year-over-year growth included roughly 6 points from the Nuance and Xandr acquisitions, which closed in last Q3 and Q4, respectively. Adjusted for the charge, operating margins decreased roughly 2 points year-over-year to 41%. Excluding the impact of the change in accounting estimate, operating margins declined roughly 4 points, primarily driven by an unfavorable FX impact as well as a lower mix of OEM revenue.

Speaker 32: At a total company level, headcount ended December 19% higher than a year ago, although sequential headcount growth was less than 1%. Year-over-year growth included roughly 6 points from the Nuance and Xandr acquisitions, which closed in last Q3 and Q4, respectively. Adjusted for the charge, operating margins decreased roughly 2 points year-over-year to 41%. Excluding the impact of the change in accounting estimate, operating margins declined roughly 4 points, primarily driven by an unfavorable FX impact as well as a lower mix of OEM revenue. Segment gross margin dollars increased 17% and 23% in constant currency, and gross margin percentage decreased slightly.

Speaker 32: Segment gross margin dollars increased 17% and 23% in constant currency, and gross margin percentage decreased slightly. Excluding the impact of the change in accounting estimate, gross margin percentage declined roughly three points, driven by a sales mix shift to Azure and higher energy costs. Operating expenses increased 34% and 37% in constant currency.

Speaker 32: Excluding the impact of the change in accounting estimate, gross margin percentage declined roughly three points driven by the sales mix shift to Azure and higher energy costs. Operating expenses increased 34% and 37% in constant currency. Including roughly 13 points of impact from the Q2 charge noted earlier and roughly 7 points of impact from the Nuance acquisition, operating income grew by 7% and 15% in constant currency, with approximately 7 points of favorable impact. The change in accounting estimate was offset by about 7 points of unfavorable impact from the Q2 charge.

Segment gross margin dollars increased 17% and 23% in constant currency and gross margin percentage decreased slightly. Excluding the impact of the change in accounting estimate, gross margin percentage declined roughly three points driven by sales mix shift to Azure and higher energy cost. Operating expenses increased 34% and 37% in constant currency.

Speaker 32: Now to our segment results. Revenue from Productivity and Business Processes was $17 billion and grew 7% and 13% in constant currency, in line with expectations when excluding the favorable FX impact noted earlier. Office Commercial revenue grew 7% and 14% in constant currency. Office 365 Commercial revenue increased 11% and 18% in constant currency, slightly better than expected with healthy renewal execution and ARPU growth as E5 momentum remains strong. Paid Office 365 Commercial seats grew 12% year-over-year with installed base expansion across all workloads and customer segments. Seat growth was driven by our small and medium business and frontline worker offerings, although we saw some impact from the slowdown in growth of new business noted earlier.

Speaker 32: Including roughly 13 points of impact from the Q2 charge noted earlier and roughly 7 points of impact from the Nuance acquisition, operating income grew by 7% and 15% in constant currency, with approximately 7 points of favorable impact. The change in accounting estimate was offset by about 7 points of unfavorable impact from the Q2 charge. Now to our segment results. Revenue from Productivity and Business Processes was $17 billion and grew 7% and 13% in constant currency, in line with expectations when excluding the favorable FX impact noted earlier. Office Commercial revenue grew 7% and 14% in constant currency.

Speaker 32: Office 365 Commercial revenue increased 11% and 18% in constant currency, slightly better than expected with healthy renewal execution and ARPU growth as E5 momentum remains strong. Paid Office 365 Commercial seats grew 12% year-over-year with installed base expansion across all workloads and customer segments. Seat growth was driven by our small and medium business and frontline worker offerings, although we saw some impact from the slowdown in growth of new business noted earlier.

Including roughly 13 points of impact from the Q2 charge noted earlier and roughly 7 points of impact from the Nuance acquisition. Operating income grew by 7% and 15% in constant currency, with approximately 7 points of favorable impact. The change in accounting estimate was offset by about 7 points of unfavorable impact from the Q2 charge.

Amy E. Hood: At a segment level, FX decreased productivity and business processes revenue growth by six points, one point favorable to expectations. FX's impact on intelligent cloud and more personal computing was both in line with expectations. Additionally, FX decreased both COGS and operating expense growth by two points, one point unfavorable to expectations.

Now, to more personal computing. Revenue was $14.2 billion, decreasing by 19 percent and 16 percent in constant currency, below expectations due to Surface, Windows Commercial, and Search.

Speaker 32: Now, to more personal computing. Revenue was $14.2 billion, decreasing by 19 percent and 16 percent in constant currency, below expectations due to Surface, Windows Commercial, and Search. Windows OEM revenue decreased by 39 percent year-over-year, in line with expectations. However, excluding the impact from the Windows 11 deferral last year, revenue declined by 36 percent on a strong prior year comparable. Devices revenue decreased by 39 percent and 34 percent in constant currency, below expectations due to execution challenges on new product launches.

Amy E. Hood: Microsoft Cloud revenue was $27.1 billion and grew 22% to 29% in constant currency ahead of expectations. Microsoft Cloud Gross Margin Percentage increased roughly two points year-over-year to 72%, a point better than expected, driven by lower energy costs. Excluding the impact of the change in accounting estimates for useful lives, Microsoft Cloud Gross Margin Percentage decreased roughly one point, primarily driven by sales mixed shift to Azure. Company gross margin percentage was 67%. Excluding the impact of the change in accounting estimate, gross margin percentage decreased roughly two points, driven by a lower mix of Windows OEM revenue and a mixed shift from licensing to cloud. Operating expense, when adjusted for the Q2 charge, increased 11% and 13% in constant currency, about $500 million lower than expected.

Windows OEM revenue decreased by 39 percent year-over-year, in line with expectations. Excluding the impact from the Windows 11 deferral last year, revenue declined by 36 percent on a strong prior year comparable. Devices revenue decreased by 39 percent and 34 percent in constant currency, below expectations due to execution challenges on new product launches.

Speaker 32: Windows commercial products and cloud services revenue declined by 3 percent and increased by 3 percent in constant currency, lower than expected, primarily due to the slowdown and growth of new business and standalone offerings noted earlier. Office Consumer revenue declined 2% and increased 3% in constant currency, with continued momentum in Microsoft 365 subscriptions, which grew 12% to 63.2 million, partially offset by declines in our transactional business. LinkedIn revenue increased 10% and 14% in constant currency, driven by growth in Talent Solutions, partially offset by weakness in Marketing Solutions from the advertising trends noted earlier.

Speaker 32: Office Consumer revenue declined 2% and increased 3% in constant currency, with continued momentum in Microsoft 365 subscriptions, which grew 12% to 63.2 million, partially offset by declines in our transactional business. LinkedIn revenue increased 10% and 14% in constant currency, driven by growth in Talent Solutions, partially offset by weakness in Marketing Solutions from the advertising trends noted earlier. Office Consumer revenue declined 2% and increased 3% in constant currency, with continued momentum in Microsoft 365 subscriptions, which grew 12% to 63.2 million, partially offset by declines in our transactional business. LinkedIn revenue increased 10% and 14% in constant currency, driven by growth in Talent Solutions, partially offset by weakness in Marketing Solutions from the advertising trends noted earlier.

Windows commercial products and cloud services revenue declined by 3 percent and increased by 3 percent in constant currency, lower than expected, primarily due to the slowdown and growth of new business and standalone offerings noted earlier.

Speaker 32: Search and news advertising revenue, X-TAC, increased by 10 percent and 15 percent in constant currency, a bit lower than expected, as noted earlier. However, our Edge browser gained more share than expected this quarter. The Xandr acquisition contributed roughly six points of benefit. Office Consumer revenue declined 2% and increased 3% in constant currency, with continued momentum in Microsoft 365 subscriptions, which grew 12% to 63.2 million, partially offset by declines in our transactional business. LinkedIn revenue increased 10% and 14% in constant currency, driven by growth in Talent Solutions, partially offset by weakness in Marketing Solutions from the advertising trends noted earlier.

Search and news advertising revenue, X-TAC, increased by 10 percent and 15 percent in constant currency, a bit lower than expected, as noted earlier. Our Edge browser gained more share than expected this quarter. The Xandr acquisition contributed roughly six points of benefit.

Speaker 32: Office Consumer revenue declined 2% and increased 3% in constant currency, with continued momentum in Microsoft 365 subscriptions, which grew 12% to 63.2 million, partially offset by declines in our transactional business. LinkedIn revenue increased 10% and 14% in constant currency, driven by growth in Talent Solutions, partially offset by weakness in Marketing Solutions from the advertising trends noted earlier. In gaming, revenue declined by 13% and 9% in constant currency, in line with expectations. Xbox hardware revenue declined by 13% and 9% in constant currency. Xbox content and services revenue declined by 12% and 8% in constant currency. Dynamics revenue grew 13% and 20% in constant currency, driven by Dynamics 365, which grew 21% and 29% in constant currency. Segment gross margin dollars increased 8% and 16% in constant currency, and gross margin percentage increased roughly 1 point year-over-year. However, excluding the impact of the change in accounting estimate, gross margin percentage decreased slightly, driven by a sales mix shift to cloud offerings.

Speaker 32: Dynamics revenue grew 13% and 20% in constant currency, driven by Dynamics 365, which grew 21% and 29% in constant currency. Segment gross margin dollars increased 8% and 16% in constant currency, and gross margin percentage increased roughly 1 point year-over-year. Excluding the impact of the change in accounting estimate, gross margin percentage decreased slightly, driven by a sales mix shift to cloud offerings.

Speaker 32: In gaming, revenue declined by 13% and 9% in constant currency, in line with expectations. Xbox hardware revenue declined by 13% and 9% in constant currency. Xbox content and services revenue declined by 12% and 8% in constant currency. Dynamics revenue grew 13% and 20% in constant currency, driven by Dynamics 365, which grew 21% and 29% in constant currency.

In gaming, revenue declined by 13% and 9% in constant currency, in line with expectations. Xbox hardware revenue declined by 13% and 9% in constant currency. Xbox content and services revenue declined by 12% and 8% in constant currency.

Speaker 32: Segment gross margin dollars increased 8% and 16% in constant currency, and gross margin percentage increased roughly 1 point year-over-year. However, excluding the impact of the change in accounting estimate, gross margin percentage decreased slightly, driven by a sales mix shift to cloud offerings.

Amy E. Hood: Operating expense growth was driven by investments in cloud engineering, the Nuance acquisition, and LinkedIn. At a total company level, headcount ended December 19% higher than a year ago, although sequential headcount growth was less than 1%.

Speaker 32: Given the strong first-party content last year, segment gross margin dollars declined by 29% and 24% in constant currency, and gross margin percentage decreased approximately seven points year over year, driven by lower device gross margins and a sales mix shift to lower-margin businesses. Dynamics revenue grew 13% and 20% in constant currency, driven by Dynamics 365, which grew 21% and 29% in constant currency. Segment gross margin dollars increased 8% and 16% in constant currency, and gross margin percentage increased roughly 1 point year-over-year. However, excluding the impact of the change in accounting estimate, gross margin percentage decreased slightly, driven by a sales mix shift to cloud offerings.

Speaker 32: Operating expense increased 12% and 14% in constant currency, including roughly 5 points from the Q2 charge. Operating income increased 6% and 17% in constant currency as the 3 points of favorable impact due to the change in accounting estimate were offset by 3 points of unfavorable impact from the Q2 charge noted earlier. Operating expense increased 12% and 14% in constant currency, including roughly 5 points from the Q2 charge. Operating income increased 6% and 17% in constant currency as the 3 points of favorable impact due to the change in accounting estimate were offset by 3 points of unfavorable impact from the Q2 charge noted earlier.

Given the strong first-party content last year, segment gross margin dollars declined by 29% and 24% in constant currency, and gross margin percentage decreased approximately seven points year over year, driven by lower device gross margins and a sales mix shift to lower-margin businesses.

Speaker 32: Operating expenses increased 6% and 9% in constant currency, including roughly 6 points of impact from the Q2 charge noted earlier and 3 points of impact from the Xandr acquisition. Operating expenses increased 12% and 14% in constant currency, including roughly 5 points from the Q2 charge. Operating income increased 6% and 17% in constant currency as the 3 points of favorable impact due to the change in accounting estimate were offset by 3 points of unfavorable impact from the Q2 charge noted earlier. Operating expense increased 12% and 14% in constant currency, including roughly 5 points from the Q2 charge. Operating income increased 6% and 17% in constant currency as the 3 points of favorable impact due to the change in accounting estimate were offset by 3 points of unfavorable impact from the Q2 charge noted earlier.

Amy E. Hood: Year-over-year growth included roughly six points from the Nuance and Zander acquisitions, which closed in Q3 and Q4, respectively. Adjusted for the charge, operating margins decreased roughly two points year-over-year to 41%, excluding the impact of the change in accounting estimate. Operating margins declined roughly four points, primarily driven by unfavorable FX impacts, as well as a lower mix of OEM revenue. Now, to our segment results. Revenue from productivity and business processes was $17 billion and grew 7% and 13% in constant currency, in line with expectations, excluding the favorable FX impact noted earlier. Office commercial revenue grew 7% and 14% in constant currency.

Operating expenses increased 6% and 9% in constant currency, including roughly 6 points of impact from the Q2 charge noted earlier, and 3 points of impact from the Xandr acquisition.

Speaker 32: Operating income decreased 47% and 40% in constant currency, including roughly six points of unfavorable impact from the Q2 charge noted earlier. Now back to total company results. Operating expense increased 12% and 14% in constant currency, including roughly 5 points from the Q2 charge. Operating income increased 6% and 17% in constant currency as the 3 points of favorable impact due to the change in accounting estimate were offset by 3 points of unfavorable impact from the Q2 charge noted earlier. Capital expenditures, including finance leases, were $6.8 billion to support cloud demand, and cash paid for PP&E was $6.3 billion. Cash flow from operations was $11.2 billion, down 23% year over year, as strong cloud billings and collections were more than offset by a tax payment.

Speaker 32: Operating expense increased 12% and 14% in constant currency, including roughly 5 points from the Q2 charge. Operating income increased 6% and 17% in constant currency as the 3 points of favorable impact due to the change in accounting estimate were offset by 3 points of unfavorable impact from the Q2 charge noted earlier. Capital expenditures, including finance leases, were $6.8 billion to support cloud demand, and cash paid for PP&E was $6.3 billion. Cash flow from operations was $11.2 billion, down 23% year over year, as strong cloud billings and collections were more than offset by a tax payment.

Operating income decreased 47% and 40% in constant currency, including roughly six points of unfavorable impact from the Q2 charge noted earlier. Now back to total company results.

Speaker 32: Next, the Intelligent Cloud segment. Revenue was $21.5 billion, increasing 18% and 24% in constant currency, in line with expectations. Overall, server products and cloud services revenue increased 20% and 26% in constant currency. Azure and other cloud services revenue grew 31% and 38% in constant currency. As noted earlier, growth continued to moderate, particularly in December, and we exited the quarter with Azure constant currency growth in the mid-30s. Next, the Intelligent Cloud segment. Revenue was $21.5 billion, increasing 18% and 24% in constant currency, in line with expectations. Overall, server products and cloud services revenue increased 20% and 26% in constant currency. Azure and other cloud services revenue grew 31% and 38% in constant currency. However, as noted earlier, growth continued to moderate, particularly in December, and we exited the quarter with Azure constant currency growth in the mid-30s.

Capital expenditures, including finance leases, were $6.8 billion to support cloud demand. Cash paid for PP&E was $6.3 billion. Cash flow from operations was $11.2 billion, down 23% year over year, as strong cloud billings and collections were more than offset by a tax payment.

Speaker 32: Next, the Intelligent Cloud segment. Revenue was $21.5 billion, increasing 18% and 24% in constant currency, in line with expectations. Overall, server products and cloud services revenue increased 20% and 26% in constant currency. Azure and other cloud services revenue grew 31% and 38% in constant currency. As noted earlier, growth continued to moderate, particularly in December, and we exited the quarter with Azure constant currency growth in the mid-30s. Related to the TCJA capitalization of the R&D provision, as well as higher employee and supplier payments, free cash flow was $4.9 billion, down 43% year over year, excluding the impact of this tax payment.

Speaker 32: Related to the TCJA capitalization of the R&D provision, as well as higher employee and supplier payments, free cash flow was $4.9 billion, down 43% year over year, excluding the impact of this tax payment. Cash flow from operations declined 7%, and free cash flow declined 16%. This quarter, other income and expense was a negative $60 million, lower than anticipated, driven by a mark-to-market loss on a forward share purchase agreement. Our effective tax rate was approximately 19%. Finally, we returned $9.7 billion to shareholders through share repurchases and dividends.

Related to the TCJA capitalization of R&D provision, as well as higher employee and supplier payments, free cash flow was $4.9 billion, down 43% year over year, excluding the impact of this tax payment. Cash flow from operations declined 7%, and free cash flow declined 16%.

Speaker 32: Cash flow from operations declined 7%, and free cash flow declined 16%. This quarter, other income and expense was a negative $60 million, lower than anticipated, driven by a mark-to-market loss on a forward share purchase agreement. Our effective tax rate was approximately 19%. Finally, we returned $9.7 billion to shareholders through share repurchases and dividends.

Amy E. Hood: Office 365 commercial revenue increased 11% and 18% in constant currency, slightly better than expected, with healthy renewal execution and ARPU growth as E5 momentum remains strong. Paid Office 365 commercial seats grew 12% year-over-year with installed base expansion across all workloads and customer segments. See, growth was driven by our small and medium business and frontline worker offerings, although we saw some impact from the slowdown in growth of new business earlier. Office consumer revenue declined 2% and increased 3% in constant currency with continued momentum in Microsoft 365 subscriptions, which grew 12% to $63.2 million, partially offset by declines in our transactional business. LinkedIn revenue increased 10% and 14% in constant currency, driven by growth in talent solutions, partially offset by weakness in marketing solutions from the advertising trends noted earlier.

Speaker 32: In our per user business, the Enterprise Mobility and Security installed base grew 16% to over 241 million seats, with impact from the slowdown in growth of new business noted earlier. In our on-premises server business, revenue decreased 2% and increased 2% in constant currency, with continued hybrid demand offset by weakness in transactional licensing. Enterprise Services revenue grew 2% and 7% in constant currency. Segment gross margin dollars increased 17% and 23% in constant currency, and gross margin percentage decreased slightly. Excluding the impact of the change in accounting estimate, gross margin percentage declined roughly 3 points, driven by a sales mix shift to Azure and higher energy costs.

This quarter, other income and expense was a negative $60 million, lower than anticipated, driven by a mark-to-market loss on a forward share purchase agreement. Our effective tax rate was approximately 19%. Finally, we returned $9.7 billion to shareholders through share repurchases and dividends.

Speaker 32: Segment gross margin dollars increased 17% and 23% in constant currency, and gross margin percentage decreased slightly. Excluding the impact of the change in accounting estimate, gross margin percentage declined roughly 3 points, driven by a sales mix shift to Azure and higher energy costs.

Speaker 32: Now, moving to our Q3 outlook, which, unless specifically noted otherwise, is on a US dollar basis. My commentary for both the full year and next quarter does not include any impact from Activision, as we continue to work towards closing the acquisition in fiscal year 2023, subject to obtaining required regulatory approvals. First, FX, subject to obtaining the required regulatory approvals. Based on current rates, we now expect FX to decrease total revenue growth by approximately 3 points, COGS growth by 1 point, and operating expense growth by 2 points. Within the segments, we anticipate a roughly 4-point negative impact on revenue growth in productivity and business processes, 3 points in the intelligent cloud, and 2 points in more personal computing.

Now, moving to our Q3 outlook, which, unless specifically noted otherwise, is on a US dollar basis. My commentary for both the full year and next quarter does not include any impact from Activision, as we continue to work towards closing in fiscal year 2023.

Speaker 32: Based on current rates, we now expect FX to decrease total revenue growth by approximately 3 points, COGS growth by 1 point, and operating expense growth by 2 points. Within the segments, we anticipate a roughly 4-point negative impact on revenue growth in productivity and business processes, 3 points in the intelligent cloud, and 2 points in more personal computing. Operating expenses increased 34% and 37% in constant currency, including roughly 13 points of impact from the Q2 charge noted earlier and roughly 7 points of impact from the Nuance acquisition. Operating income grew 7% and 15% in constant currency, as roughly 7 points of the favorable impact of the change in accounting estimate was offset by approximately 7 points of unfavorable impact from the Q2 charge. In our consumer business, Windows OEM and devices will see continued declines as the PC market returns to pre-pandemic levels. LinkedIn and search will be impacted as ad market spending remains somewhat cautious.

subject to obtaining required regulatory approvals. First, FX.

Based on current rates, we now expect FX to decrease total revenue growth by approximately 3 points, COGS growth by 1 point, and operating expense growth by 2 points. Within the segments, we anticipate a roughly 4-point negative impact on revenue growth in productivity and business processes, 3 points in the intelligent cloud, and 2 points in more personal computing.

Speaker 32: Operating expenses increased 34% and 37% in constant currency, including roughly 13 points of impact from the Q2 charge noted earlier and roughly 7 points of impact from the Nuance acquisition. Operating income grew 7% and 15% in constant currency, as roughly 7 points of the favorable impact of the change in accounting estimate was offset by approximately 7 points of unfavorable impact from the Q2 charge. In our consumer business, Windows OEM and devices will see continued declines as the PC market returns to pre-pandemic levels. LinkedIn and search will be impacted as ad market spending remains somewhat cautious.

Speaker 32: Operating expenses increased 34% and 37% in constant currency, including roughly 13 points of impact from the Q2 charge noted earlier and roughly 7 points of impact from the Nuance acquisition. Operating income grew 7% and 15% in constant currency as roughly 7 points of the favorable impact of the change in accounting estimate was offset by approximately 7 points of unfavorable impact from the Q2 charge. Operating expenses increased 34% and 37% in constant currency, including roughly 13 points of impact from the Q2 charge noted earlier and roughly 7 points of impact from the Nuance acquisition. Operating income grew 7% and 15% in constant currency as roughly 7 points of the favorable impact of the change in accounting estimate was offset by approximately 7 points of unfavorable impact from the Q2 charge.

Amy E. Hood: Dynamics revenue grew 13% and 20% in constant currency, driven by Dynamics 365, which grew 21% to 29% in constant currency. Segment gross margin dollars increased 8% and 16% in constant currency, and gross margin percentage increased roughly 1.0 over year. Excluding the impact of the change in accounting estimate, gross margin percentage decreased slightly, driven by a sales mix shift to cloud offerings. Operating expense increased 12% and 14% in constant currency, including roughly 5 points from the Q2 charge.

Speaker 32: Operating expenses increased 34% and 37% in constant currency, including roughly 13 points of impact from the Q2 charge noted earlier and roughly 7 points of impact from the Nuance acquisition. Operating income grew 7% and 15% in constant currency as roughly 7 points of the favorable impact of the change in accounting estimate was offset by approximately 7 points of unfavorable impact from the Q2 charge. In our commercial business, we expect business trends that we saw at the end of December to continue into Q3. Meanwhile, while customers are more cautious in their spending, we also have the opportunity to improve our execution, given our strong position in durable growth markets. In commercial bookings, with a declining expiry base and a strong priority comparable in terms of large Azure contracts, we expect growth to be relatively flat year over year.

In our consumer business, Windows OEM and devices will see continued declines as the PC market returns to pre-pandemic levels. LinkedIn and search will be impacted as ad market spending remains somewhat cautious.

Speaker 32: Operating expenses increased 34% and 37% in constant currency, including roughly 13 points of impact from the Q2 charge noted earlier and roughly 7 points of impact from the Nuance acquisition. Operating income grew 7% and 15% in constant currency as roughly 7 points of the favorable impact of the change in accounting estimate was offset by approximately 7 points of unfavorable impact from the Q2 charge. Operating expenses increased 34% and 37% in constant currency, including roughly 13 points of impact from the Q2 charge noted earlier and roughly 7 points of impact from the Nuance acquisition. Operating income grew 7% and 15% in constant currency as roughly 7 points of the favorable impact of the change in accounting estimate was offset by approximately 7 points of unfavorable impact from the Q2 charge.

Speaker 32: In our commercial business, we expect business trends that we saw at the end of December to continue into Q3. Meanwhile, while customers are more cautious in their spending, we also have the opportunity to improve our execution, given our strong position in durable growth markets. In commercial bookings, with a declining expiry base and a strong priority comparable in terms of large Azure contracts, we expect growth to be relatively flat year over year. We expect consistent execution across our core and from the sales motions, and continued commitments to our platform.

In our commercial business, we expect business trends that we saw at the end of December to continue into Q3. While customers are more cautious in their spending, we also have the opportunity to improve our execution, given our strong position in durable growth markets.

Speaker 32: Now to More Personal Computing. Revenue was $14.2 billion, decreasing 19% and 16% in constant currency, below expectations driven by Surface, Windows Commercial, and Search. Windows OEM revenue decreased 39% year-over-year, in line with expectations. However, excluding the impact from the Windows 11 deferral last year, revenue declined 36% on a strong prior year comparable. Devices revenue decreased 39% and 34% in constant currency, below expectations due to execution challenges on new product launches.

Speaker 32: Now to More Personal Computing. Revenue was $14.2 billion, decreasing 19% and 16% in constant currency, below expectations driven by Surface, Windows Commercial, and Search. Windows OEM revenue decreased 39% year-over-year, in line with expectations. However, excluding the impact from the Windows 11 deferral last year, revenue declined 36% on a strong prior year comparable. Devices revenue decreased 39% to 34% in constant currency, below expectations due to execution challenges on new product launches.

Speaker 32: We expect consistent execution across our core and from the sales force and continued commitments to our platform.

In commercial bookings, with a declining expiry base and a strong priority comparable in terms of large Azure contracts, we expect growth to be relatively flat year over year. We expect consistent execution across our core and from the sales motions, and continued commitments to our platform.

Speaker 32: Now to More Personal Computing. Revenue was $14.2 billion, decreasing 19% and 16% in constant currency, below expectations driven by Surface, Windows Commercial, and search. Windows OEM revenue decreased 39% year-over-year, in line with expectations. However, excluding the impact from the Windows 11 deferral last year, revenue declined 36% on a strong prior year comparable. Devices revenue decreased 39% to 34% in constant currency, below expectations due to execution challenges on new product launches, but will be offset by the impact from the slowdown of new business noted earlier and three points of unfavorable impact from the inclusion of Nuance in the prior year.

Amy E. Hood: Operating income increased 6% and 17% in constant currency, as the 3 points of favorable impact of the change in accounting estimate were offset by 3 points of unfavorable impact from the Q2 charge noted earlier. Next, the Intelligent Cloud segment. Revenue was $21.5 billion, increasing 18% and 24% in constant currency, in line with expectations.

Speaker 32: Microsoft Cloud gross margin percentage should be up roughly one point year-over-year, driven by the accounting estimate change noted earlier, but will be offset by the impact from the slowdown of new business noted earlier, and three points of unfavorable impact from the inclusion of Nuance in the prior year. Microsoft Cloud's gross margin percentage should be up roughly one point year-over-year, driven by the accounting estimate change noted earlier. Excluding that impact, 2.3 The cloud gross margin percentage will decrease roughly one point driven by Azure.

will be offset by the impact from the slowdown of new business noted earlier, and three points of unfavorable impact from the inclusion of Nuance in the prior year. Microsoft Cloud gross margin percentage should be up roughly one point year-over-year, driven by the accounting estimate change noted earlier.

Speaker 32: Excluding that impact, 2.3 Cloud gross margin percentage will decrease roughly one point driven by Azure. Windows Commercial products and cloud services revenue declined 3% and increased 3% in constant currency, lower than expected, primarily due to the slowdown in growth of new business and stand-alone offerings noted earlier. Search and news advertising revenue ex TAC increased 10% and 15% in constant currency, a bit lower than expected, as noted earlier. However, our Edge browser gained more share than expected this quarter. The Xandr acquisition contributed roughly 6 points of benefit. For capital expenditures, we expect a sequential increase on a dollar basis with normal quarterly spend variability and the timing of our Cloud infrastructure build-out. Our data center investments will continue to be based on near-term and long-term customer demand, including AI opportunities.

Speaker 32: Windows Commercial products and cloud services revenue declined 3% and increased 3% in constant currency, lower than expected, primarily due to the slowdown in growth of new business and stand-alone offerings noted earlier. Search and news advertising revenue ex TAC increased 10% and 15% in constant currency, a bit lower than expected, as noted earlier. Our Edge browser gained more share than expected this quarter. The Xandr acquisition contributed roughly 6 points of benefit.

Speaker 32: In capital expenditures, we expect a sequential increase on a dollar basis with normal quarterly spend variability and the timing of our Cloud infrastructure build-out. Our data center investments continue to be based on near-term and long-term customer demand, including AI opportunities.

Excluding that impact, 2.3 Cloud gross margin percentage will decrease roughly one point driven by Azure.

In capital expenditures, we expect a sequential increase on a dollar basis with normal quarterly spend variability and the timing of our Cloud infrastructure build-out. Our data center investments continue to be based on near-term and long-term customer demand, including AI opportunities.

Amy E. Hood: Overall, server products and cloud services revenue increased 20% and 26% in constant currency. Azure and other cloud services revenue grew 31% and 38% in constant currency. As noted earlier, growth continued to moderate, particularly in December, and we exited the quarter with Azure constant currency growth in the mid-30s. In our per-user business, the enterprise mobility and security installed base grew 16% to over 241 million seats, with impact from the slowdown and growth of new business noted earlier. In our on-premises server business, revenue decreased 2% and increased 2% in constant currency, with continued hybrid demand offset by weakness in transactional licensing. Enterprise services revenue grew 2% and 7% in constant currency. Segment gross margin dollars increased 17% and 23% in constant currency, and gross margin percentage decreased slightly.

Speaker 32: Next, segment guidance. For productivity and business processes, we expect revenue to grow between 11 and 13 percent in constant currency, or 16.9 to 17.2 billion US dollars. In Office commercial, revenue growth will again be driven by Office 365 with SEIP growth across customer segments and ARPU growth through E5. In productivity and business processes, we expect revenue to grow between 11 and 13 percent in constant currency, or 16.9 to 17.2 billion US dollars. In Office commercial, revenue growth will again be driven by Office 365 with SEIP growth across customer segments and ARPU growth through E5.

Next, segment guidance.

In productivity and business processes, we expect revenue to grow between 11 and 13 percent in constant currency, or 16.9 to 17.2 billion US dollars. In office commercial, revenue growth will again be driven by Office 365 with SEIP growth across customer segments and ARPU growth through E5.

Speaker 32: And in gaming, revenue declined 13% and 9% in constant currency, in line with expectations. Xbox hardware revenue declined 13% and 9% in constant currency. Xbox content and services revenue declined 12% and 8% in constant currency, given the strong first-party content last year. Segment gross margin dollars declined 29% and 24% in constant currency, and gross margin percentage decreased roughly 7 points year-over-year, driven by lower device gross margin and a sales mix shift to lower-margin businesses.

Speaker 32: We expect Office 365 revenue growth to be sequentially lower by approximately one point on a constant currency basis. For our on-premises business, we expect revenue to decline in the mid-20s. In Office Consumer, we expect revenue growth in the low single digits driven by Microsoft 365 subscriptions. However, we predict that Office 365 revenue growth will decline in the mid-20s. And in gaming, revenue declined 13% and 9% in constant currency, in line with expectations. Xbox hardware revenue declined 13% and 9% in constant currency. Xbox content and services revenue declined 12% and 8% in constant currency, given the strong first-party content last year. Segment gross margin dollars declined 29% and 24% in constant currency, and gross margin percentage decreased roughly 7 points year-over-year, driven by lower device gross margin and a sales mix shift to lower-margin businesses.

We expect Office 365 revenue growth to be sequentially lower by approximately one point on a constant currency basis. In our on-premises business, we expect revenue to decline in the mid-20s. In Office Consumer, we expect revenue growth in the low single digits driven by Microsoft 365 subscriptions. We predict that Office 365 revenue growth will decline in the mid-20s.

Speaker 32: Xbox content and services revenue declined 12% and 8% in constant currency, given the strong first-party content last year. Segment gross margin dollars declined 29% and 24% in constant currency, and gross margin percentage decreased roughly 7 points year-over-year, driven by lower device gross margin and a sales mix shift to lower-margin businesses.

Speaker 32: For LinkedIn, we expect mid-single-digit revenue growth with continued strong engagement on the platform, although impacted by the advertising trends noted earlier and a slowdown in hiring, particularly in the technology industry, where we have significant exposure. Operating expenses increased 6% and 9% in constant currency, including roughly 6 points of impact from the Q2 charge noted earlier and 3 points of impact from the Xandr acquisition. Operating income decreased 47% and 40% in constant currency, including roughly 6 points of unfavorable impact from the Q2 charge noted earlier. For Dynamics, we expect revenue growth to be in the low to mid-teens, driven by continued growth in Dynamics 365, which now accounts for over 80 percent of total Dynamics revenue.

For LinkedIn, we expect mid-single-digit revenue growth with continued strong engagement on the platform, although impacted by the advertising trends noted earlier and a slowdown in hiring, particularly in the technology industry where we have significant exposure.

Speaker 32: In Dynamics, we expect revenue growth to be in the low to mid-teens, driven by continued growth in Dynamics 365, which now accounts for over 80 percent of total Dynamics revenue. For Intelligent Cloud, we expect revenue to grow between 17 and 19 percent in constant currency, or 21.7 to 22 billion US dollars.

Speaker 32: For Intelligent Cloud, we expect revenue to grow between 17 and 19 percent in constant currency, or 21.7 to 22 billion US dollars. Operating expenses increased 6% and 9% in constant currency, including roughly 6 points of impact from the Q2 charge noted earlier and 3 points of impact from the Xandr acquisition.

Speaker 32: Operating income decreased 47% and 40% in constant currency, including roughly 6 points of unfavorable impact from the Q2 charge noted earlier.

In Dynamics, we expect revenue growth to be in the low to mid-teens, driven by continued growth in Dynamics 365, which now accounts for over 80 percent of total Dynamics revenue. For Intelligent Cloud, we expect revenue to grow between 17 and 19 percent in constant currency, or 21.7 to 22 billion US dollars.

Amy E. Hood: Excluding the impact of the change in accounting estimate, gross margin percentage declined roughly 3 points, driven by mixed sales shift to Azure and higher energy costs. Operating expenses increased 34% and 37% in constant currency, including roughly 13 points of impact from the Q2 charge noted earlier and roughly 7 points of impact from the Nuance acquisition. Operating income grew 7% and 15% in constant currency, as roughly 7 points of favorable impact. The change in accounting estimate was offset. Approximately 7 points of unfavorable impact from the Q2 charge.

Speaker 32: Operating income decreased 47% and 40% in constant currency, including roughly 6 points of unfavorable impact from the Q2 charge noted earlier. Operating expenses increased 6% and 9% in constant currency, including roughly 6 points of impact from the Q2 charge noted earlier and 3 points of impact from the Xandr acquisition. Operating income decreased 47% and 40% in constant currency, including roughly 6 points of unfavorable impact from the Q2 charge noted earlier. Operating expenses increased 6% and 9% in constant currency, including roughly 6 points of impact from the Q2 charge noted earlier and 3 points of impact from the Xandr acquisition. Operating income decreased 47% and 40% in constant currency, including roughly 6 points of unfavorable impact from the Q2 charge noted earlier.

Speaker 32: Revenue will continue to be driven by Azure, which, as a reminder, can have quarterly variability, primarily from our per-user business and from end-of-period revenue recognition, depending on the mix of contracts. Now back to total company results. Capital expenditures, including finance leases, were $6.8 billion to support cloud demand, and cash paid for PP&E was $6.3 billion. Cash flow from operations was $11.2 billion, down 23% year-over-year as strong cloud billings and collections were more than offset by a tax payment related to the TCJA capitalization of the R&D provision as well as higher employee and supplier payments. Free cash flow was $4.9 billion, down 43% year-over-year. Excluding the impact of this tax payment, cash flow from operations declined 7%, and free cash flow declined 16%.

Speaker 32: Now back to total company results. Capital expenditures, including finance leases, were $6.8 billion to support cloud demand. Cash paid for PP&E was $6.3 billion, and cash flow from operations was $11.2 billion, down 23% year-over-year as strong cloud billings and collections were more than offset by a tax payment related to the TCJA capitalization of the R&D provision as well as higher employee and supplier payments. Free cash flow was $4.9 billion, down 43% year-over-year. Excluding the impact of this tax payment, cash flow from operations declined 7%, and free cash flow declined 16.

Revenue will continue to be driven by Azure, which, as a reminder, can have quarterly variability, primarily from our per-user business and from end-of-period revenue recognition, depending on the mix of contracts.

Speaker 32: In Azure, our per-user business should continue to benefit from Microsoft 365 Suite momentum, though we expect a continued moderation in growth rate given the size of the installed base. As I noted earlier, we exited 2-2 with Azure growth in the mid-30s in constant currency, and from that, we expect 2-3 growth to decelerate roughly 4-5 points in constant currency. FX impact in Azure is about a point more than at the segment level. In our on-premises server business, we expect revenue to climb in low single digits as demand for our hybrid solutions will be more than offset by unfavorable FX impact.

In Azure, our per-user business should continue to benefit from Microsoft 365 Suite momentum, though we expect a continued moderation in growth rate given the size of the installed base.

As I noted earlier, we exited 2-2 with Azure growth in the mid 30s in constant currency, and from that we expect 2-3 growth to decelerate roughly 4-5 points in constant currency. FX impact in Azure is about a point more than at the segment level.

Amy E. Hood: Now, to more personal content. Revenue was $14.2 billion, decreasing 19% and 16% in constant currency, below expectations driven by Surface, Windows Commercial, and Search. Windows OEM revenue decreased 39% year-over-year, in line with expectations.

Speaker 32: This quarter, other income and expense was negative $60 million, lower than anticipated, driven by a mark-to-market loss on a forward share purchase agreement. Our effective tax rate was approximately 19%. And finally, we returned $9.7 billion to shareholders through share repurchases and dividends, and enterprise services revenue should decline low to mid single digits driven by Microsoft Consulting Services. This quarter, other income and expense was negative $60 million, lower than anticipated, driven by a mark-to-market loss on a forward share purchase agreement.

In our on-premises server business, we expect revenue to climb low single digits as demand for our hybrid solutions will be more than offset by unfavorable FX impact.

Speaker 32: As I noted earlier, we exited 2-2 with Azure growth in the mid-30s in constant currency, and from that, we expect 2-3 growth to decelerate roughly 4-5 points in constant currency. The FX impact in Azure is about a point more than at the segment level. In our on-premises server business, we expect revenue to climb in low single digits as demand for our hybrid solutions will be more than offset by unfavorable FX impact.

Speaker 32: This quarter, other income and expense was negative $60 million, lower than anticipated, driven by a mark-to-market loss on a forward share purchase agreement. Our effective tax rate was approximately 19%. And finally, we returned $9.7 billion to shareholders through share repurchases and dividends. This quarter, other income and expense was negative $60 million, lower than anticipated, driven by a mark-to-market loss on a forward share purchase agreement. Our effective tax rate was approximately 19%. And, Finally, we returned $9.7 billion to shareholders through share repurchases and dividends.

Amy E. Hood: Excluding the impact of the Windows 11 deferral last year, revenue declined 36% on a strong prior year comparable. Devices revenue decreased 39% and 34% in constant currency, below expectations due to execution challenges on new product launches. Windows commercial products and cloud services revenue declined 3% and increased 3% in constant currency, lower than expected, primarily due to the slowdown in growth of new business and standalone offerings noted earlier. Search and news advertising revenue, XTAC, increased 10% and 15% in constant currency, a bit lower than expected, as noted earlier. However, our Edge browser gained more share than expected this quarter. The Zander acquisition contributed roughly six points of benefit. And in gaming, revenue declined 13% and 9% in constant currency, in line with expectations. Xbox hardware revenue declined 13% and 9% in constant currency.

and enterprise services, revenue should decline low to mid single digits driven by Microsoft Consulting Services.

Speaker 32: In more personal computing, we expect revenue of 11.9 to 12.3 billion US dollars. Windows OEM revenue should decline in the mid to high 30s in line with the PC market. We expect Q3 PC units to be similar to pre-pandemic levels.

Speaker 32: Our effective tax rate was approximately 19%. And, Finally, we returned $9.7 billion to shareholders through share repurchases and dividends. This quarter, other income and expense was negative $60 million, lower than anticipated, driven by a mark-to-market loss on a forward share purchase agreement. Our effective tax rate was approximately 19%. And finally, we returned $9.7 billion to shareholders through share repurchases and dividends.

In more personal computing, we expect revenue of 11.9 to 12.3 billion US dollars. Windows OEM revenue should decline in the mid to high 30s in line with the PC market. We expect Q3 PC units to be similar to pre-pandemic levels.

Speaker 32: Now moving to our Q3 outlook, which unless specifically noted otherwise, is on a U.S. dollar basis. My commentary for both the full year and next quarter does not include any impact from Activision, which we continue to work towards closing in fiscal year 2023, subject to obtaining required regulatory approvals. Now moving to our Q3 outlook, which unless specifically noted otherwise, is on a U.S. dollar basis. My commentary for both the full year and next quarter does not include any impact from Activision, which we continue to work towards closing in fiscal year 2023, subject to obtaining required regulatory approvals.

Speaker 32: Now moving to our Q3 outlook, which unless specifically noted otherwise, is on a U.S. dollar basis. My commentary for both the full year and next quarter does not include any impact from Activision, which we continue to work towards closing in fiscal year 2023, subject to obtaining required regulatory approvals. In devices, revenue should decline in the mid-40s as we work through the execution challenges noted earlier. In Windows commercial products and cloud services, on a strong prior year basis, revenue should be relatively flat as customer demand for Microsoft 365 and our advanced security solutions will be partially offset.

Speaker 32: In devices, revenue should decline in the mid-40s as we work through the execution challenges noted earlier. In Windows commercial products and cloud services, on a strong prior year basis, revenue should be relatively flat as customer demand for Microsoft 365 and our advanced security solutions will be partially offset. Now moving to our Q3 outlook, which unless specifically noted otherwise, is on a U.S. dollar basis. My commentary for both the full year and next quarter does not include any impact from Activision, which we continue to work towards closing in fiscal year 2023, subject to obtaining required regulatory approvals.

In devices, revenue should decline in the mid-40s as we work through the execution challenges noted earlier. In Windows commercial products and cloud services, on a strong prior year comparable, revenue should be relatively flat as customer demand for Microsoft 365 and our advanced security solutions will be partially offset.

Speaker 32: First, FX. Based on current rates, we now expect FX to decrease total revenue growth by approximately 3 points, COGS growth by 1 point, and operating expense growth by 2 points. Within the segments, we anticipate roughly 4 points of negative impact on revenue growth in Productivity and Business Processes; 3 points in Intelligent Cloud; and 2 points in More Personal Computing. In our Consumer business, Windows OEM and devices will see continued declines as the PC market returns to pre-pandemic levels. And LinkedIn and Search will be impacted as ad market spending remains a bit cautious.

Speaker 32: First, FX. Based on current rates, we now expect FX to decrease total revenue growth by approximately 3 points, COGS growth by 1 point, and operating expense growth by 2 points. Within the segments, we anticipate roughly 4 points of negative impact on revenue growth in Productivity and Business Processes, 3 points in Intelligent Cloud, and 2 points in More Personal Computing. In our Consumer business, Windows OEM and devices will see continued declines as the PC market returns to pre-pandemic levels. And LinkedIn and search will be impacted as ad market spending remains a bit cautious. And in gaming.

by the slowdown in new business noted earlier. Search and news advertising Xtac should grow high single digits, roughly seven points faster than overall search and news advertising revenue, driven by continued volume strength supported by Edge browser share gains and the inclusion of Xandar.

Speaker 32: Despite the slowdown in new business noted earlier, search and news advertising Xtac should grow high single digits, roughly seven points faster than overall search and news advertising revenue, driven by continued volume strength supported by Edge browser share gains and the inclusion of Xandar, despite the slowdown in new business noted earlier. Search and news advertising Xtac should grow high single digits, roughly seven points faster than overall search and news advertising revenue, driven by continued volume strength supported by Edge browser share gains and the inclusion of Xandar. First, FX. Based on current rates, we now expect FX to decrease total revenue growth by approximately 3 points, COGS growth by 1 point, and operating expense growth by 2 points.

Speaker 32: Search and news advertising Xtac should grow high single digits, roughly seven points faster than overall search and news advertising revenue, driven by continued volume strength supported by Edge browser share gains and the inclusion of Xandar, despite the slowdown in new business noted earlier. Search and news advertising Xtac should grow in high single digits, roughly seven points faster than overall search and news advertising revenue, driven by continued volume strength supported by Edge browser share gains and the inclusion of Xandar.

Speaker 32: Within the segments, we anticipate roughly 4 points of negative impact on revenue growth in Productivity and Business Processes, 3 points in Intelligent Cloud, and 2 points in More Personal Computing. In our Consumer business, Windows OEM and devices will see continued declines as the PC market returns to pre-pandemic levels. And LinkedIn and search will be impacted as ad market spending remains a bit cautious. And in gaming. On a prior year comparison that benefited from increased console supply, we expect revenue to decline in the high single digits. We expect Xbox content and services revenue to decline in the low single digits as growth in Xbox Game Pass subscriptions will be more than offset by lower monetization per hour in third-party and first-party content.

Speaker 32: On a prior year comparison that benefited from increased console supply, we expect revenue to decline in the high single digits. We expect Xbox content and services revenue to decline in the low single digits as growth in Xbox Game Pass subscriptions will be more than offset by lower monetization per hour in third-party and first-party content. Now back to company guidance. We expect COGS to grow between 1 and 2 percent in constant currency or to be between $15.65 and $15.85 billion US dollars, and operating expenses to grow between 11 and 12 percent in constant currency. In our Commercial business, we expect business trends that we saw at the end of December to continue into Q3.

Speaker 32: And in gaming, on a prior year comparison that benefited from increased console supply, we expect revenue to decline in the high single digits. We expect Xbox content and services revenue to decline in the low single digits as growth in Xbox Game Pass subscriptions will be more than offset by lower monetization per hour for third-party and first-party content. Now, back to company guidance. We expect COGS to grow between 1 and 2 percent in constant currency or to be between $15.65 and $15.85 billion US dollars, and operating expenses to grow between 11 and 12 percent in constant currency.

Speaker 32: Within the segments, we anticipate roughly 4 points of negative impact on revenue growth in Productivity and Business Processes; 3 points in Intelligent Cloud; and 2 points in More Personal Computing. In our Consumer business, Windows OEM and devices will see continued declines as the PC market returns to pre-pandemic levels. And LinkedIn and Search will be impacted as ad market spending remains a bit cautious.

And in gaming. On a prior year comparison that benefited from increased console supply, we expect revenue to decline in the high single digits. We expect Xbox content and services revenue to decline in the low single digits as growth in Xbox Game Pass subscriptions will be more than offset by lower monetization per hour in third-party and first-party content.

Speaker 32: Now back to company guidance. We expect COGS to grow between 1 and 2 percent in constant currency or to be between $15.65 and $15.85 billion US dollars, and operating expenses to grow between 11 and 12 percent in constant currency. In our Commercial business, we expect business trends that we saw at the end of December to continue into Q3. However, while customers are more cautious in their spend, we also have the opportunity to improve our execution, given our strong position in global growth markets. In commercial bookings, with a declining expiry base and the strong prior year comparable in terms of large Azure contracts, we expect growth to be relatively flat year-over-year. We expect consistent execution across our core annuity sales motions and continued commitments to our platform will be offset by the impact from the slowdown of new business noted earlier and 3 points of unfavorable impact from the inclusion of Nuance in the prior year.

Amy E. Hood: Xbox content and services revenue declined 12% and 8% in constant currency, given the strong first-party content last year. Segment gross margin dollars declined 29% and 24% in constant currency, and gross margin percentage decreased roughly 7 points year over year. Driven by lower device gross margin and a mixed shift to lower margin businesses, operating expenses increased 6% and 9% in constant currency, including roughly 6 points of impact from the Q2 charge noted earlier and 3 points of impact from the Zander acquisition. Operating income decreased 47% and 40% in constant currency, including roughly six points of unfavorable impact from the Q2 charge noted earlier.

Speaker 32: While customers are more cautious in their spend, we also have the opportunity to improve our execution, given our strong position in global growth markets. For commercial bookings, with a declining expiry base and a strong prior year comparable in terms of large Azure contracts, we expect growth to be relatively flat year-over-year. We expect consistent execution across our core annuity sales motions and continued commitments to our platform will be offset by the impact from the slowdown of new business noted earlier and 3 points of unfavorable impact from the inclusion of Nuance in the prior year.

Speaker 32: In our Commercial business, we expect business trends that we saw at the end of December to continue into Q3. However, while customers are more cautious in their spend, we also have the opportunity to improve our execution, given our strong position in global growth markets. In commercial bookings, with a declining expiry base and the strong prior year comparable in terms of large Azure contracts, we expect growth to be relatively flat year-over-year. We expect consistent execution across our core annuity sales motions and continued commitments to our platform will be offset by the impact from the slowdown of new business noted earlier and 3 points of unfavorable impact from the inclusion of Nuance in the prior year.

Speaker 32: In our Commercial business, we expect business trends that we saw at the end of December to continue into Q3. However, while customers are more cautious in their spend, we also have the opportunity to improve our execution, given our strong position in global growth markets. In commercial bookings, with a declining expiry base and the strong prior year comparable in terms of large Azure contracts, we expect growth to be relatively flat over year. We expect consistent execution across our core and with the sales motions and continued commitments to our platform will be offset by the impact from the slowdown of new business noted earlier and 3 points of unfavorable impact from the inclusion of Nuance in the prior year.

Speaker 32: In our Commercial business, we expect business trends that we saw at the end of December to continue into Q3. However, while customers are more cautious in their spend, we also have the opportunity to improve our execution, given our strong position in global growth markets. In commercial bookings, with a declining expiry base and the strong prior year comparable in terms of large Azure contracts, we expect growth to be relatively flat over year. We expect consistent execution across our core and sales activities and continued commitments to our platform will be offset by the impact from the slowdown of new business noted earlier and 3 points of unfavorable impact from the inclusion of Nuance in the prior year.

Speaker 32: In our Commercial business, we expect business trends that we saw at the end of December to continue into Q3. However, while customers are more cautious in their spend, we also have the opportunity to improve our execution, given our strong position in global growth markets. In commercial bookings, with a declining expiry base and the strong prior year comparable in terms of large Azure contracts, we expect growth to be relatively flat over year. We expect consistent execution across our core and with the sales motions and continued commitments to our platform will be offset by the impact from the slowdown of new business noted earlier and 3 points of unfavorable impact from the inclusion of Nuance in the prior year.

Speaker 32: In our Commercial business, we expect business trends that we saw at the end of December to continue into Q3. However, while customers are more cautious in their spend, we also have the opportunity to improve our execution, given our strong position in global growth markets. In commercial bookings, with a declining expiry base and the strong prior year comparable in terms of large Azure contracts, we expect growth to be relatively flat over year. We expect consistent execution across our core and sales activities and continued commitments to our platform will be offset by the impact from the slowdown of new business noted earlier and 3 points of unfavorable impact from the inclusion of Nuance in the prior year.

Now back to company guidance. We expect COGS to grow between 1 and 2 percent in constant currency or to be between $15.65 and $15.85 billion US dollars, and operating expenses to grow between 11 and 12 percent in constant currency.

Speaker 32: Or the amount could be $14.7 to $14.8 billion. Other income and expense should be roughly $200 million, as interest income is expected to more than offset interest expense. As a reminder, we are required to recognize mark-to-market gains and losses on our equity portfolio, which can increase quarterly volatility. We expect our Q3 effective tax rate to be between 19 and 20 percent. And finally, as a reminder for Q3 cash flow, we expect to make a $1.2 billion cash tax payment related to the TCJA capitalization of R&D provision. Now, some thoughts on H2 and the full year. Microsoft Cloud gross margin percentage should be up roughly 1 point year-over-year, driven by the accounting estimate change noted earlier.

Or be $14.7 to $14.8 billion. Other income and expense should be roughly $200 million, as interest income is expected to more than offset interest expense. As a reminder, we are required to recognize mark-to-market gains and losses on our equity portfolio, which can increase.

Speaker 32: Quarterly volatility. We expect our Q3 effective tax rate to be between 19 and 20 percent. And finally, as a reminder for Q3 cash flow, we expect to make a $1.2 billion cash tax payment related to the TCJA capitalization of R&D provision. Now, some thoughts on H2 and the full year. Microsoft Cloud gross margin percentage should be up roughly 1 point year-over-year, driven by the accounting estimate change noted earlier. Excluding that impact, Q3 cloud gross margin percentage will decrease roughly 1 point, driven by Azure. In capital expenditures, we expect a sequential increase on a dollar basis with normal quarterly spend variability in the timing of our cloud infrastructure build-out. Our data center investments continue to be based on near-term and longer-term customer demand, including AI opportunities.

Quarterly volatility. We expect our Q3 effective tax rate to be between 19 and 20 percent. And finally, as a reminder for Q3 cash flow, we expect to make a $1.2 billion cash tax payment related to the TCJA capitalization of R&D provision.

Speaker 32: Excluding that impact, the Q3 cloud gross margin percentage will decrease roughly 1 point, driven by Azure. In capital expenditures, we expect a sequential increase on a dollar basis with normal quarterly spend variability in the timing of our cloud infrastructure build-out. Our data center investments continue to be based on near-term and longer-term customer demand, including AI opportunities.

Amy E. Hood: Now back to total company results. Capital expenditures, including finance leases, were $6.8 billion to support cloud demand. Cash paid for PP&E was $6.3 billion.

Speaker 32: First, in our commercial business, revenue grew 20% on a constant currency basis in H1. However, we now expect to see a deceleration in H2 given how we exited December. Next,

Speaker 32: Microsoft Cloud gross margin percentage should be up roughly 1 point year-over-year, driven by the accounting estimate change noted earlier. Excluding that impact, Q3 cloud gross margin percentage will decrease roughly 1 point, driven by Azure. In capital expenditures, we expect a sequential increase on a dollar basis with normal quarterly spend variability in the timing of our cloud infrastructure build-out. Our data center investments continue to be based on near-term and longer-term customer demand, including AI opportunities. Microsoft Cloud gross margin percentage should be up roughly 1 point year-over-year, driven by the accounting estimate change noted earlier. Excluding that impact, Q3 cloud gross margin percentage will decrease roughly 1 point, driven by Azure.

Amy E. Hood: Cash flow from operations was $11.2 billion, down 23% year-over-year, as strong cloud billings and collections were more than offset by a tax payment related to the TCJA capitalization of the R&D provision, as well as higher employee and supplier payments. Free cash flow was $4.9 billion, down 43% year-over-year. Excluding the impact of this tax payment, cash flow from operations declined 7%, and free cash flow declined 1

Now, some thoughts on H2 and the full year.

Speaker 32: First, in our commercial business, revenue grew 20% on a constant currency basis in H1. However, we now expect to see a deceleration in H2 given how we exited December. Next,

First, in our commercial business, revenue grew 20% on a constant currency basis in H1. However, we now expect to see a deceleration in H2 given how we exited December. Next.

Speaker 32: Higher energy costs for the full year are now expected to be $500 million, compared to our previous estimate of $800 million. Third, as we continue to prioritize our investments and integrate the Nuance and Xandr acquisitions, our Q4 operating expense growth should be in the low single digits in constant currency. Finally, we remain committed to operational excellence, aligning costs and growth, investing in our customer success, and leading the AI platform wave.

Speaker 32: In capital expenditures, we expect a sequential increase on a dollar basis with normal quarterly spend variability in the timing of our cloud infrastructure build-out. Our data center investments continue to be based on near-term and longer-term customer demand, including AI opportunities. Higher energy costs for the full year are now expected to be $500 million, compared to our previous estimate of $800 million. Third, as we continue to prioritize our investments and integrate the Nuance and Xandr acquisitions, our Q4 operating expense growth should be in the low single digits in constant currency.

Higher energy costs for the full year are now expected to be $500 million, compared to our previous estimate of $800 million.

Third, as we continue to prioritize our investments and integrate the Nuance and Xandr acquisitions, our Q4 operating expense growth should be in the low single digits in constant currency.

Speaker 32: Finally, we remain committed to operational excellence, aligning costs and growth, investing in our customer success, and leading the AI platform wave.

Speaker 32: Next, segment guidance. For Productivity and Business Processes, we expect revenue to grow between 11% and 13% in constant currency, or USD 16.9 billion to USD 17.2 billion. In Office Commercial, revenue growth will again be driven by Office 365 with seat growth across customer segments and ARPU growth through E5. However, we expect Office 365 revenue growth to be sequentially lower by roughly 1 point on a constant currency basis. In our on-premises business, we expect revenue to decline in the mid-20s. In Office Consumer, we expect revenue growth in the low single digits, driven by Microsoft 365 subscriptions. For LinkedIn, we expect mid-single-digit revenue growth with continued strong engagement on the platform, although impacted by the advertising trends noted earlier and the slowdown in hiring, particularly in the technology industry, where we have significant exposure.

Finally, we remain committed to operational excellence, aligning costs and growth, investing in our customer success, and leading the AI platform wave.

Amy E. Hood: This quarter, other income and expense was negative $60 million, lower than anticipated, driven by a mark-to-market loss on a forward share purchase agreement. Our effective tax rate was approximately 19%. And finally, we returned $9.7 billion to shareholders through share repurchases and dividends. Now, moving to our Q3 outlook, which, unless specifically noted otherwise, is on a U.S. dollar basis. My commentary for both the full year and next quarter does not include any impact from Activision, which we continue to work towards closing in fiscal year 2023, subject to obtaining required regulatory approvals. First FX. Based on current rates, we now expect FX to decrease total revenue growth by approximately three points, COGS growth by one point, and operating expense growth by two points. Within the segments, we anticipate roughly four points of negative impact on revenue growth and productivity in business processes, three points in intelligent cloud, and two points in more personal computing. In our consumer business, Windows OEM and devices will see continued declines as the PC market returns to pre-pandemic levels.

Speaker 32: As a result, when excluding the Q2 charge and the favorable impact from the change in accounting estimate, we expect full-year operating margins to be down roughly one point in constant currency and roughly two points in USD, even with the headwinds from significantly lower OEM revenue and higher energy costs. Next, segment guidance. In Productivity and Business Processes, we expect revenue to grow between 11% and 13% in constant currency, or USD 16.9 billion to USD 17.2 billion. In Office Commercial, revenue growth will again be driven by Office 365 with seat growth across customer segments and ARPU growth through E5. We expect Office 365 revenue growth to be sequentially lower by roughly 1 point on a constant currency basis. For our on-premises business, we expect revenue to decline in the mid-20s. In Office Consumer, we expect revenue growth in the low single digits, driven by Microsoft 365 subscriptions.

As a result, when excluding the Q2 charge and favorable impact from the change in accounting estimate, we expect full-year operating margins to be down roughly one point in constant currency and roughly two points in USD, even with the headwinds from significantly lower OEM revenue and higher energy costs.

Speaker 32: In the first half of the year, over 70% of our revenue came from our commercial business, and over 70 percent of that from Microsoft Cloud. We have a resilient foundation in durable growth markets where we are gaining share.

Speaker 32: We expect Office 365 revenue growth to be sequentially lower by roughly 1 point on a constant currency basis. For our on-premises business, we expect revenue to decline in the mid-20s. In Office Consumer, we expect revenue growth in the low single digits, driven by Microsoft 365 subscriptions. For LinkedIn, we expect mid-single-digit revenue growth with continued strong engagement on the platform, although impacted by the advertising trends noted earlier and the slowdown in hiring, particularly in the technology industry, where we have significant exposure. In the first half of the year, over 70% of our revenue came from our commercial business, and over 70 percent of that came from Microsoft Cloud.

In the first half of the year, over 70% of our revenue came from our commercial business.

Speaker 32: We have a resilient foundation in durable growth markets where we are gaining share.

and over 70 percent of that from Microsoft Cloud.

Speaker 32: I'm confident in the ability of our Microsoft team to manage the near-term by continuing to position ourselves for the future. With that, let's go to Q&A, Brett. Thanks, Amy. We'll now move over to the Q&A. Out of respect for others on the call, we request that participants please ask only one question. Joe, can you please repeat your instructions? Ladies and gentlemen, at this time, we will be conducting a question-and-answer session. If you would like to ask a question, please press star 1 on your telephone keypad, and a confirmation tone will indicate your line is in the question queue. Thanks, Amy. We'll now move over to the Q&A. Out of respect for others on the call, we request that participants please ask only one question. Joe, can you please repeat your instructions?

We have a resilient foundation in durable growth markets where we are gaining share.

I'm confident in the ability of our Microsoft team to manage the near-term by continuing to position ourselves for the future. With that, let's go to Q&A, Brett.

Thanks, Amy. We'll now move over to the Q&A. Out of respect for others on the call, we request that participants please ask only one question. Joe, can you please repeat your instructions?

Speaker 32: And in Dynamics, we expect revenue growth to be in the low to mid-teens, driven by continued growth in Dynamics 365, which is now over 80% of total Dynamics revenue. For Intelligent Cloud, we expect revenue to grow between 17% and 19% in constant currency, or USD 21.7 billion to USD 22 billion. Revenue will continue to be driven by Azure, which, as a reminder, can have quarterly variability primarily from our per user business and from in-period revenue recognition depending on the mix of contracts.

Ladies and gentlemen, at this time, we will be conducting a question-and-answer session. If you would like to ask a question, please press star 1 on your telephone keypad, and a confirmation tone will indicate your line is in the question queue.

Speaker 32: You may press star 2 if you would like to remove your question from the queue.

Speaker 32: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

You may press star 2 if you would like to remove your question from the queue.

Speaker 32: One moment, please, while we poll for questions. Our first question comes from the line of Keith Weiss with Morgan Stanley. Please proceed. Excellent. Thank you, guys, for taking the question. I was hoping we could delve into the expansion of the investment in OpenAI. Satya, I was hoping you could talk to us about whether there's any expansion in the scope of what you guys are doing with OpenAI and the commitment you are making in terms of the computing capacity you are providing to them. Our first question comes from Keith Weiss with Morgan Stanley.

Amy E. Hood: And LinkedIn and Search will be impacted as ad market spending remains a bit cautious. In our commercial business, we expect business trends that we saw at the end of December to continue into Q3. While customers are more cautious in their spend, we also have the opportunity to improve our execution, given our strong position and durable growth market. For commercial bookings, with a declining expiry base and a strong prior year comparable in terms of large Azure contracts, we expect growth to be relatively flat year over year. We expect consistent execution across our core and community sales motions and continued commitments to our platform will be offset by the impact from the slowdown of new business noted earlier and three points of unfavorable impact from the inclusion of nuance in the prior year. Microsoft Cloud gross margin percentage should be up roughly one point year over year driven by the accounting estimate change noted earlier.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Speaker 32: Ladies and gentlemen, at this time, we will be conducting a question-and-answer session. If you would like to ask a question, please press star 1 on your telephone keypad, and a confirmation tone will indicate your line is in the question queue.

One moment, please, while we poll for questions.

Our first question comes from the line of Keith Weiss with Morgan Stanley. Please proceed.

Speaker 32: In Azure, our per-user business should continue to benefit from Microsoft 365 suite momentum, though we expect continued moderation in growth rates given the size of the installed base. As I noted earlier, we exited Q2 with Azure growth in the mid-30s in constant currency. And from that, we expect Q3 growth to decelerate roughly 4 to 5 points in constant currency. The FX impact in Azure is about 1 point more than at the segment level. In our on-premises server business, we expect revenue to decline in low single digits as demand for our hybrid solutions will be more than offset by unfavorable FX impact. And in Enterprise Services, revenue should decline in low to mid-single digits, driven by Microsoft Consulting Services.

Excellent. Thank you, guys, for taking the question. I was hoping we could delve into the expansion of the investment in OpenAI. Satya, I was hoping you could talk to us about whether there's any expansion in the scope of what you guys are doing with OpenAI and the commitment you are making in terms of the computing capacity, which you are providing to them?

Speaker 32: Please proceed. Excellent. Thank you, guys, for taking the question. I was hoping we could delve into the expansion of the investment in OpenAI. Satya, I was hoping you could talk to us about whether there's any expansion in the scope of what you guys are doing with OpenAI and the commitment you are making in terms of the computing capacity you are providing to them.

Speaker 32: And in Enterprise Services, revenue should decline low to mid-single digits, driven by the Microsoft Consulting Services portfolio. Thank you so much, Keith, for the question. So, as you know, we started the OpenAI partnership three years, three and a half years ago, and we've been actually working very hard on a lot of elements of this partnership over the last three years. And so I think the way for on In More Personal Computing, we expect revenue of USD 11.9 billion to USD 12.3 billion. Windows OEM revenue should decline in the mid- to high-30s, in line with the PC market.

Speaker 32: We expect Q3 PC units to be similar to pre-pandemic levels. In devices, revenues should decline in the mid-40s as we work through the execution challenges noted earlier. In Windows Commercial products and cloud services, on a strong prior year comparable basis, revenue should be relatively flat as customer demand for Microsoft 365 and our advanced security solutions will be partially offset by the slowdown in new business noted earlier. Thank you so much, Keith, for the question. So, as you know, we started the OpenAI partnership three years, three and a half years ago, and we've actually been working very hard on a lot of elements of this partnership over the last three years.

Amy E. Hood: Excluding that impact, the Q3 Cloud gross margin percentage will decrease roughly one point driven by Azure. In capital expenditures, we expect a sequential increase on a dollar basis with normal quarterly spend variability in the timing of our cloud infrastructure build-out. Our data center investments continue to be based on near-term and longer-term customer demand, including AI opportunities. Next segment, guys.

portfolio.

Thank you so much, Keith, for the question. So as you know, we started the OpenAI partnership three years, three and a half years ago, and we've been actually working very hard on a lot of elements of this partnership over the last three years. And so I think the way for on...

Speaker 32: And so I think the way for on In More Personal Computing, we expect revenue of USD 11.9 billion to USD 12.3 billion. Windows OEM revenue should decline in the mid- to high 30s, in line with the PC market. We expect Q3 PC units to be similar to pre-pandemic levels. In devices, revenues should decline in the mid-40s as we work through the execution challenges noted earlier. In Windows Commercial products and cloud services, on a strong prior year basis, revenue should be relatively flat as customer demand for Microsoft 365 and our advanced security solutions will be partially offset by the slowdown in new business noted earlier.

Speaker 32: In More Personal Computing, we expect revenue of USD 11.9 billion to USD 12.3 billion. Windows OEM revenue should decline in the mid- to high 30s, in line with the PC market. We expect Q3 PC units to be similar to pre-pandemic levels. In devices, revenues should decline in the mid-40s as we work through the execution challenges noted earlier. In Windows Commercial products and cloud services, on a strong prior year basis, revenue should be relatively flat as customer demand for Microsoft 365 and our advanced security solutions will be partially offset by the slowdown in new business noted earlier.

Speaker 32: In Windows Commercial products and cloud services, on a strong prior year basis, revenue should be relatively flat as customer demand for Microsoft 365 and our advanced security solutions will be partially offset by the slowdown in new business noted earlier.

Amy E. Hood: In productivity and business processes, we expect revenue to grow between 11% and 13% in constant currency, or $16.9 to $17.2 billion U.S. dollars. In Office commercial, revenue growth will again be driven by Office 365, with seat growth across customer segments and ARPU growth through E5. We expect Office 365 revenue growth to be sequentially lower by roughly one point on a constant currency basis. For our on-premises business, we expect revenue to decline in the mid-20s.

Speaker 32: Waves impact every part of our tech stack and also create new solutions and opportunities. So whenever we think about platform opportunities and platform shift opportunities, that's how we approach them. How can we essentially ride the wave of everything we have today and make it more expansive? And then what can you create? So if you take that lens, the core of Azure, or what is considered cloud computing, fundamentally changes its nature and how compute, storage, and network come together. That's, in some sense, under the radar, if you will, for the last three and a half, four years. We've been working very, very hard to build, and then what you can create.

Waves impact every part of our tech stack and also create new solutions and opportunities. So whenever we think about platform opportunities and platform shift opportunities, that's how we approach it. How can we essentially ride the wave for everything we have today and make it more expansive?

and then what you can create. So if you take that lens, the core of Azure, or what is considered cloud computing, fundamentally changes in its nature and how compute storage and network come together. That's in some sense under the radar, if you will, for the last three and a half, four years, we've been working very, very hard to build.

Speaker 32: Search and news advertising ex TAC should grow high single digits, roughly 7 points faster than overall search and news advertising revenue, driven by continued volume strength supported by Edge browser share gains and the inclusion of Xandr. Search and news advertising ex TAC should grow high single digits, roughly 7 points faster than overall search and news advertising revenue, driven by continued volume strength supported by Edge browser share gains and the inclusion of Xandr.

Amy E. Hood: In the office consumer, we expect revenue growth in the low single digits, driven by Microsoft 365 subscriptions. For LinkedIn, we expect mid-single-digit revenue growth with continued strong engagement on the platform, although impacted by the advertising trends noted earlier and a slowdown in hiring, particularly in the technology industry, where we have significant exposure. And in Dynamics, we expect revenue growth to be in the low to mid-teens. We expect revenue growth to be in the mid-teens, driven by continued growth in Dynamics 365, which is now over 80% of total Dynamics revenue. For Intelligent Cloud, we expect revenue to grow between 17% and 19% in constant currency, or $21.7 to $22 billion U.S. dollars.

Speaker 32: So if you take that lens, the core of Azure, or what is considered cloud computing, fundamentally changes its nature and how compute, storage, and network come together. That's, in some sense, under the radar, if you will, for the last three and a half, four years. We've been working very, very hard to build.

Speaker 32: And in gaming, on a prior year comparable that benefited from increased console supply, we expect revenue to decline in the high single digits. We expect Xbox content and services revenue to decline in the low single digits as growth in Xbox Game Pass subscriptions will be more than offset by lower monetization per hour and third-party and first-party content. On a prior year comparable that benefited from increased console supply, we expect revenue to decline in the high single digits. We expect Xbox content and services revenue to decline in the low single digits as growth in Xbox Game Pass subscriptions will be more than offset by lower monetization per hour and third-party and first-party content.

Speaker 32: Business is being transformed. And so, you can see us, you know, with data beyond Azure OpenAI services even. Think about what Synapse plus OpenAI APIs can do.

Business is being transformed. And so, you can see us, you know, with data beyond Azure OpenAI services even. Think about what Synapse plus OpenAI APIs can do.

Speaker 32: We already have a Power Platform with incorporated capabilities. You can initiate a workflow. One of the reasons why we are the leaders in Robotic Process Automation and Workflow Automation today is because of some of the AI capabilities we have with that. GitHub, co5.

We already have a Power Platform with incorporated capabilities. You can initiate a workflow. One of the reasons why we are the leaders in Robotic Process Automation and Workflow Automation today is because of some of the AI capabilities we have with that. GitHub, co5.

Speaker 32: Now back to company guidance. We expect COGS to grow between 1% and 2% in constant currency or to be between USD 15.65 billion and USD 15.85 billion and operating expense to grow between 11% and 12% at constant currency or to be between USD 14.7 billion and USD 14.8 billion. Other income and expense should be roughly $200 million as interest income is expected to more than offset interest expense. As a reminder, we are required to recognize mark-to-market gains and losses on our equity portfolio, which can increase quarterly volatility. We expect our Q3 effective tax rate to be between 19% and 20%.

Speaker 32: And finally, as a reminder, for Q3 cash flow, we expect to make a $1.2 billion cash tax payment related to the TCJA capitalization of R&D provision.

Speaker 32: We expect our Q3 effective tax rate to be between 19% and 20%. And finally, as a reminder, for Q3 cash flow, we expect to make a $1.2 billion cash tax payment related to the TCJA capitalization of R&D provision.

is in fact, you would say, the most at scale LLM based product out there in the marketplace today. And so we fully expect us to sort of incorporate AI in every layer of the stack, whether it's in productivity, whether it's in our consumer services. And so we're excited about it, but I think that we're also excited about open AI zone.

Amy E. Hood: Revenue will continue to be driven by Azure, which, as a reminder, can have quarterly variability, primarily from our per-user business and from in-period revenue recognition, depending on the next set of contracts. In Azure, our per-user business should continue to benefit from Microsoft 365 Suite momentum, though we expect continued moderation and growth rates given the size of the installed base. As I noted earlier, we exited 2-2 with Azure growth in the mid-30s in constant currency, and from that, we expect 2-3 growth to decelerate roughly 4-5 points in constant currency. The FX impact in Azure is about a point more than at the segment level.

Speaker 32: And finally, as a reminder, for Q3 cash flow, we expect to make a $1.2 billion cash tax payment related to the TCJA capitalization of R&D provision. This is, in fact, you would say, the most at scale LLM-based product out there in the marketplace today. And so we fully expect to sort of incorporate AI into every layer of the stack, whether it's in productivity, whether it's in our consumer services. And so we're excited about it, but I think that we're also excited about Open AI Zone, which is, in fact, you would say, the most at scale LLM-based product out there in the marketplace today. And so we fully expect to sort of incorporate AI into every layer of the stack, whether it's in productivity, whether it's in our consumer services. And so we're excited about it, but I think that we're also excited about the open AI zone.

Speaker 32: I think innovation and competitive differentiation in every one of the Microsoft solutions lies in leading in AI.

I think innovation and competitive differentiation in every one of the Microsoft solutions by leading in AI.

Speaker 32: Thanks, Keith. Joe, next question, please. Now some thoughts on H2 and the full year. First, in our Commercial business, revenue grew 20% on a constant currency basis in H1. However, we now expect to see a deceleration in H2, given how we exited December. Next, higher energy costs for the full year are now expected to be $500 million compared to our previous estimate of $800 million. Third, as we continue to prioritize our investments and anniversary the Nuance and Xandr acquisitions, our Q4 operating expense growth should be in the low single digits in constant currency.

Speaker 32: Now some thoughts on H2 and the full year. First, in our Commercial business, revenue grew 20% on a constant currency basis in H1. However, we now expect to see a deceleration in H2, given how we exited December. Next, higher energy costs for the full year are now expected to be $500 million compared to our previous estimate of $800 million. Third, as we continue to prioritize our investments and anniversary the Nuance and Xandr acquisitions, our Q4 operating expense growth should be in the low single digits in constant currency.

Speaker 32: Our next question comes from the line of Brent Till with Jefferies. Please proceed. Now some thoughts on H2 and the full year. First, in our Commercial business, revenue grew 20% on a constant currency basis in H1. However, we now expect to see a deceleration in H2, given how we exited December. Next, higher energy costs for the full year are now expected to be $500 million compared to our previous estimate of $800 million. Third, as we continue to prioritize our investments and anniversary the Nuance and Xandr acquisitions, our Q4 operating expense growth should be in the low single digits in constant currency.

Thanks, Keith. Joe, next question, please.

Our next question comes from the line of Brent Till with Jefferies. Please proceed.

Thanks, Satya. Can you give us your overall macro view? There were some comments you had made that concerned, I think, many about the state of the US spending environment. I'm just curious if you could comment and follow up on what you're seeing there just from a spending environment throughout the year. I think many...

Amy E. Hood: In our on-premises server business, we expect revenue to climb low single digits, as demand for our hybrid solutions will be more than offset by unfavorable FX impacts. And in Enterprise Services, revenue should decline low to mid single digits, driven by Microsoft Consulting Services. In more personal computing, we expect revenue of 11.9 to 12.3 billion U.S. dollars. Windows OEM revenue should decline in the mid to high 30s in line with the PC market. We expect Q3 PC shipments to be similar to pre-pandemic levels. In devices, revenue should decline in the mid-40s as we work through the execution challenges noted earlier.

Speaker 32: I think many Finally, we remain committed to operational excellence, aligning cost and growth, investing in our customer success, and leading the AI platform wave. As a result, when excluding the Q2 charge and favorable impact from the change in accounting estimate, we expect full year operating margins to be down roughly 1 point in constant currency and roughly 2 points in USD, even with the headwinds from materially lower OEM revenue and higher energy costs. Thanks, Satya. Can you give us your overall macro view? There were some comments you had made that concerned, I think, many people about the state of the US spending environment.

Speaker 32: I'm just curious if you could comment and follow up on what you're seeing there just from a spending environment throughout the year. I think many Finally, we remain committed to operational excellence, aligning cost and growth, investing in our customer success, and leading the AI platform wave. As a result, when excluding the Q2 charge and the favorable impact from the change in accounting estimate, we expect full-year operating margins to be down roughly 1 point in constant currency and roughly 2 points in USD, even with the headwinds from materially lower OEM revenue and higher energy costs.

Speaker 32: Finally, we remain committed to operational excellence, aligning cost and growth, investing in our customer success, and leading the AI platform wave. As a result, when excluding the Q2 charge and the favorable impact from the change in accounting estimate, we expect full-year operating margins to be down roughly 1 point in constant currency and roughly 2 points in USD, even with the headwinds from materially lower OEM revenue and higher energy costs.

Speaker 32: I always sort of subscribe to the idea that there's only one law of gravity that I think all of us are subject to, which is inflation-adjusted economic growth in the world. And then, how many times do we grow? Because, as I said in my conference, I fundamentally believe that, you know, tech as a percentage of GDP is going to be much higher on a secular basis. So the question is, how many times is it given?

I always sort of subscribe to the idea that there's only one law of gravity that I think all of us are subject to, which is inflation-adjusted economic growth in the world. And then, how many times do we grow? Because as I said in my conference, I fundamentally believe that, you know, tech as a percentage of GDP is going to be much higher on a secular basis. So the question is, how many times is it given?

Amy E. Hood: In Windows commercial products and cloud services, on a strong prior year basis, revenue should be relatively flat as customer demand for Microsoft 365 and our advanced security solutions will be partially offset by the slowdown in new business noted earlier. Search and news advertising XTAC should grow in high single digits, roughly seven points faster than overall search and news advertising revenue, driven by continued volume strength, supported by edge browser share gains, and the inclusion of Xandr. And in gaming, on a prior year comparable that benefited from increased console supply, we expect revenue to decline in the high single digits. We expect Xbox content and services revenue to decline in the low single digits as growth in Xbox Game Pass subscriptions will be more than offset by lower monetization per hour and third-party and first-party content.

Speaker 32: In the first half of the year, over 70% of our revenue came from our Commercial business, and over 70% of that from Microsoft Cloud. We have a resilient foundation and durable growth markets where we are gaining share. I'm confident in the ability of our Microsoft team to manage for the near term by continuing to position ourselves for the future. With that, let's go to Q&A. Brett?

Speaker 32: Optimizing it and then also being a bit more cautious, given the macroeconomic headwinds out there in the market. So, given those two things, the point is, the optimizations will end. In fact, the money that they save in any optimization of any workload is what they'll plow into workloads. And those workloads will start ramping up.

Optimizing it.

And then, also being a bit more cautious, given the macroeconomic headwinds out there in the market. So, given those two things, the point is, the optimizations will end. In fact, the money that they save in any optimization of any workload is what they'll plow into workflows. And those workloads will start ramping up.

Speaker 32: Thanks, Amy. We'll now move over to the Q&A. (Operator Instructions) Joe, can you please repeat your instructions? Thanks, Amy. We'll now move over to the Q&A. (Operator Instructions) Joe, can you please repeat your instructions? Thanks, Amy. We'll now move over to the Q&A. (Operator Instructions) Joe, can you please repeat your instructions?

Speaker 32: (Operator Instructions) Our first question comes from the line of Keith Weiss with Morgan Stanley.

Speaker 32: And then also being a bit more cautious, given the macroeconomic headwinds out there in the market. So, given those two things, the point is that the optimizations will end. In fact, the money that they save in any optimization of any workload is what they'll plow into workloads, and those workloads will start ramping up.

Speaker 32: And so, one of the key things we are watching for our brand is to make sure that we are gaining share in this phase through our value propositions and even building loyalty with our customers, so that, in the long term, we are well-positioned for share gains. That's fundamentally how we view it.

Speaker 32: Thanks, Amy. We'll now move over to the Q&A. (Operator Instructions) Joe, can you please repeat your instructions? (Operator Instructions) Our first question comes from the line of Keith Weiss with Morgan Stanley. I was hoping we could delve into the expansion of the investment into OpenAI. Satya, could you talk to us about is there any expansion in the scope of what you guys are already doing with OpenAI and the commitment that you guys are making in terms of sort of the compute capacity you're going to be giving to them? I was hoping we could delve into the expansion of the investment into OpenAI.

Speaker 32: Satya, I was hoping you could talk to us about whether there is any expansion in the scope of what you guys are already doing with OpenAI and the commitment that you guys are making in terms of sort of the compute capacity you're going to be giving to them? (Operator Instructions) Our first question comes from the line of Keith Weiss with Morgan Stanley. I was hoping we could delve into the expansion of the investment into OpenAI. Satya, could you talk to us about is there any expansion in the scope of what you guys are already doing with OpenAI and the commitment that you guys are making in terms of sort of the compute capacity you're going to be giving to them?

Speaker 32: I was hoping we could delve into the expansion of the investment into OpenAI. Satya, I was hoping you could talk to us about, is there any expansion in the scope of what you guys are doing with OpenAI and the commitment that you guys are making in terms of sort of the compute capacity you're going to be giving to them? And then maybe, as from an investor's perspective, how should we think about when this functionality is going to become -- expand beyond just sort of the Azure OpenAI services? And where are we going to start to see some of the positive impacts to perhaps Bing or the productivity suite or more broadly across the solution portfolio?

Speaker 32: (Operator Instructions) Our first question comes from the line of Keith Weiss with Morgan Stanley. I was hoping we could delve into the expansion of the investment into OpenAI. Satya, I was hoping you could talk to us about whether there is any expansion in the scope of what you guys are already doing with OpenAI and the commitment that you guys are making in terms of sort of the compute capacity you're going to be giving to them.

And so, one of the key things we are watching for our brand is to make sure that we are gaining share in this phase through our value propositions and even building loyalty with our customers, so that in the long term, we are well-positioned for share gains. That's fundamentally how we view it.

Speaker 32: (Operator Instructions)

Speaker 32: Our first question comes from the line of Keith Weiss with Morgan Stanley. I was hoping we could delve into the expansion of the investment into OpenAI. Satya, I was hoping you could talk to us about is there any expansion in the scope of what you guys are already doing with OpenAI and the commitment that you guys are making in terms of sort of the compute capacity you're going to be giving to them? I was hoping we could delve into the expansion of the investment into OpenAI. Satya, I was hoping you could talk to us about, is there any expansion in the scope of what you guys are doing with OpenAI and the commitment that you guys are making in terms of sort of the compute capacity you're going to be giving to them?

Speaker 32: I was hoping we could delve into the expansion of the investment into OpenAI. Satya, could you talk to us about is there any expansion in the scope of what you guys are already doing with OpenAI and the commitment that you guys are making in terms of sort of the compute capacity you're going to be giving to them? I was hoping we could delve into the expansion of the investment into OpenAI. Satya, I was hoping you could talk to us about, is there any expansion in the scope of what you guys are doing with OpenAI and the commitment that you guys are making in terms of sort of the compute capacity you're going to be giving to them? And then maybe, as from an investor's perspective, how should we think about when this functionality is going to become -- expand beyond just sort of the Azure OpenAI services?

Speaker 32: And where are we going to start to see some of the positive impacts on perhaps Bing or the productivity suite or more broadly across the solution portfolio?

Amy E. Hood: Now back to the Company Guide. We expect COGS to grow between 1 and 2 percent in constant currency, or to be between 15.65 and 15.85 billion U.S. dollars, and operating expense to grow between 11 and 12 percent in constant currency, or to be between 14.7 and 14.8 billion U.S. dollars. Other income and expense should be roughly $200 million as interest income is expected to more than offset interest expense. As a reminder, we are required to recognize mark-to-market gains and losses on our equity portfolio, which can increase quarterly volatility. We expect our Q3 effective tax rate to be between 19 and 20 percent.

Speaker 32: And then the other aspect I'd also say is simultaneously investing in this new AI trend because I don't think any application startups that happen next are going to look like the application startups of 2019 or 2020. They're all going to have considerations regarding how my AI influences performance.

And then the other aspect I'd also say is simultaneously investing in this new AI trend because I don't think any application startups that happen next are going to look like the application startups of 2019 or 2020. They're all going to have considerations regarding how my AI influences performance.

Speaker 32: And then maybe, from an investor's perspective, how should we think about when this functionality is going to become -- expand beyond just sort of the Azure OpenAI services, and when we're going to start to see some of the positive impacts on perhaps Bing or the productivity suite or more broadly across the solution portfolio?

Speaker 32: And then maybe, as from an investor's perspective, how should we think about when this functionality is going to become -- expand beyond just sort of the Azure OpenAI services, and when we're going to start to see some of the positive impacts to perhaps Bing or the productivity suite or more broadly across the solution portfolio? cost, and model is going to look like. And that's where we are in position again. So that's how I view it. The market, you know, you're better readers of quite frankly what's happening out there. We can tell you what we see. What we see is optimization and some cautious approach to new workloads, and that will cycle through. But we fundamentally believe on a long-term basis as a percentage of GDP, tech spend, cost, and model is going to look like.

cost, model is going to look like. And that's where we are in position again. So that's how I view it. The market, you know, you all are better readers of quite frankly what's happening out there. We can tell you what we see, what we see is optimization and some cautious approach to new workloads and that will cycle through. But we do fundamentally believe on a long term basis as a percentage of GDP tech spend GDP.

Speaker 32: Thank you so much, Keith, for the question. So, as you know, we started the OpenAI partnership now, 3 years, 3.5 years ago. And we've actually been working very hard on a lot of elements of this partnership over the last 3 years. And so I think the way for our investors to see this is that we fundamentally believe that the next big platform wave, as I said, is going to be AI and be strong. Thank you so much, Keith, for the question. So, as you know, we started the OpenAI partnership now, 3 years, 3.5 years ago.

Speaker 32: And we've actually been working very hard on a lot of elements of this partnership over the last 3 years. And so I think the way for our investors to see this is that we fundamentally believe that the next big platform wave, as I said, is going to be AI and be strong. We also believe a lot of enterprise value gets created by just being able to catch these waves and then have those waves impact every part of our tech stack and also create new solutions and new opportunities.

Speaker 32: And that's where we are in position again. So that's how I view it. The market, you know, you're better readers of quite frankly what's happening out there. We can tell you what we see. What we see is optimization and some cautious approach to new workloads, and that will cycle through. But we fundamentally believe, on a long term basis, as a percentage of GDP, tech spend should go into GDP.

Amy E. Hood: And finally, as a reminder for Q3 cash flow, we expect to make a $1.2 billion cash tax payment related to the TCJA capitalization of R&D provision. Now, some thoughts on H-2 and the full year. First, in our commercial business, revenue grew 20% on a constant currency basis in H1. However, we now expect to see a deceleration in H2 given how we exit December. Next, higher energy costs for the full year are now expected to be $500 million compared to our previous estimate of $800 million.

Speaker 32: A little bit on this question relating to optimization. I know we saw some slowing this quarter, and you're guiding to a slowing down next quarter in Cloud Azure. How much of that, do you believe at this point, is truly people optimizing what they've already purchased and addressing that before that?

Speaker 32: We also believe a lot of enterprise value gets created by just being able to catch these waves and then have those waves impact every part of our tech stack and also create new solutions and new opportunities. We also believe a lot of enterprise value gets created by just being able to catch these waves and then have those waves impact every part of our tech stack and also create new solutions and new opportunities, versus how much of that is due to macro factors themselves specifically impacting demand.

A little bit on this question relating to optimization. I know we saw some slowing this quarter, and you're guiding to a slowing down next quarter in Cloud Azure. How much of that, do you believe at this point, is truly people optimizing what they've already purchased and addressing that before that?

Speaker 32: So whenever we think about platform opportunities and platform shift opportunities, that's how we come at it: how can we essentially ride the wave for everything that we have today and make it more expansive, and then what new can be created? So if you take that lens, the core of Azure or what is considered cloud computing fundamentally changes in its nature and how compute, storage, and networking come together. That's, in some sense, under the radar, if you will. For the last 3.5, 4 years, we've been working very, very hard to build both the training supercomputers and now, of course, the inference infrastructure because once you use AI inside of your applications, it goes from just being training-heavy to inference.

Speaker 32: We also believe a lot of enterprise value gets created by just being able to catch these waves and then have those waves impact every part of our tech stack and also create new solutions and new opportunities, versus how much of that is due to macro factors themselves specifically impacting demand. So whenever we think about platform opportunities and platform shift opportunities, that's how we come at it: how can we essentially ride the wave of everything that we have today and make it more expansive, and then what new can be created?

Speaker 32: So if you take that lens, the core of Azure or what is considered cloud computing fundamentally changes in its nature and how compute, storage, and network come together. That's, in some sense, under the radar, if you will. For the last 3.5, 4 years, we've been working very, very hard to build both the training supercomputers and now, of course, the inference infrastructure because once you use AI inside of your applications, it goes from just being training-heavy to inference. So whenever we think about platform opportunities and platform shift opportunities, that's how we come at it: how can we essentially ride the wave of everything that we have today and make it more expansive, and then what new can be created?

versus how much of that is due to macro factors themselves specifically impacting demand.

Speaker 32: Let me mention two things, and then Amy, please feel free to add. One is that it absolutely starts with workloads that they have at scale, primarily because of the visibility one has on what's driving the consumption meters. So whenever we think about platform opportunities and platform shift opportunities, that's how we come at it. How can we essentially ride the wave of everything that we have today and make it more expansive, and then what can be created? So if you take that lens, the core of Azure or what is considered cloud computing fundamentally changes in its nature and how compute, storage, and network come together.

Amy E. Hood: Third, as we continue to prioritize our investments and anniversary the Nuance and Zander acquisitions, our Q4 operating expense growth should be in the low single digits in constant currency. Finally, we remain committed to operational excellence, aligning cost and growth, investing in our customers' success, and leading the AI platform wave. As a result, when excluding the Q2 charge and the favorable impact from the change in accounting estimate, we expect full-year operating margins to be down roughly one point in constant currency and roughly two points in USD, even with the headwinds from materially lower OEM revenue and higher energy costs.

Speaker 32: That's, in some sense, under the radar, if you will. For the last 3.5, 4 years, we've been working very, very hard to build both the training supercomputers and now, of course, the inference infrastructure because once you use AI inside of your applications, it goes from just being training-heavy to inference.

Let's mention two things, and then Amy, please feel free to add. One is that it absolutely starts with workloads that they have at scale, primarily because of the visibility one has on what's driving the consumption meters.

Speaker 32: So whenever we think about platform opportunities and platform shift opportunities, that's how we come at it. How can we essentially ride the wave of everything that we have today and make it more expansive, and then what can be created? So if you take that lens, the core of Azure or what is considered cloud computing fundamentally changes in its nature and how compute, storage, and network come together. That's, in some sense, under the radar, if you will. For the last 3.5, 4 years, we've been working very, very hard to build both the training supercomputers and now, of course, the inference infrastructure because once you use AI inside of your applications, it goes from just being training-heavy to inference.

Speaker 32: And there's real guidance that we ourselves included in the product to say, here are the things that you could do to optimize your billing. And so that's sort of the fundamental thing. When we say 'do more with less' and how we can help, that's sort of the first place customers go to. And then the next piece, really, I think, is going to be about

And there's real guidance that we ourselves included in the product to say, here are the things that you could do to optimize your billing. And so that's sort of the fundamental thing. When we say 'do more with less' and how can we help, that's sort of the first place customers go to. And then the next piece, really, I think, is going to be about

Speaker 32: How do they take the optimization that they get and the savings they get in one workload, and what new project starts? And that's where I think there's a reprioritization. When should we start a new project? Those are two things that are happening simultaneously. They don't perfectly match, but one of the things is that they're looking to make some savings on some workloads, combined with the component of cost.

How do they take the optimization that they get and the savings they get in one workload, and what new project starts? And that's where I think there's a reprioritization. When should we start a new project? Those are the two things that are happening simultaneously. They don't perfectly match, but one of the things is they're looking to bag some savings on some workloads, combined with the component of cost.

Speaker 32: So that's sort of, I think, core Azure itself is being transformed for the core infrastructure business. It's being transformed, and so you can see us with data beyond Azure OpenAI services. Even think about what Synapse plus OpenAI APIs can do. We already have Power Platform incorporated capability. You could prompt the -- I mean, one of the reasons why we are the leaders in robotic process automation and workflow automation today is because of some of the AI capabilities that we have in there. So that's sort of, I think, core Azure itself is being transformed for the core infrastructure business. It's being transformed.

Speaker 32: And so you can see us with data beyond Azure OpenAI services even, think about what Synapse plus OpenAI APIs can do. We already have Power Platform incorporated capability. You could prompt the -- I mean, one of the reasons why we are the leaders in robotic process automation and workflow automation today is because of some of the AI capabilities that we have in there. So that's sort of, I think, core Azure itself is being transformed for the core infrastructure business. And so you can see us with data beyond Azure OpenAI services even, think about what Synapse plus OpenAI APIs can do. We already have Power Platform incorporated capability. You could prompt the -- I mean, one of the reasons why we are the leaders in robotic process automation and workflow automation today is because of some of the AI capabilities that we have in there.

Amy E. Hood: In the first half of the year, over 70% of our revenue came from our commercial business, and over 70% of that from Microsoft Cloud. We have a resilient foundation and durable growth markets where we are gaining share. I'm confident in the ability of our Microsoft team to deliver in the near term by continuing to position ourselves for the future. With that, let's go to Q&A, Brett.

Speaker 32: And then start. So, I think a little bit of what has to happen is a cycle time where the optimization cycle finishes, the projects start, and then the projects wrap. And I think that's what, at least on the cloud consumption side, you're seeing. And on the per user side, it is slightly different, which is that per user, there was a real acceleration in terms of purchases. So that's sort of, I think, core Azure itself is being transformed for the core infrastructure business. It's being transformed, and so you can see us with data beyond Azure OpenAI services. Even think about what Synapse plus OpenAI APIs can do. We already have Power Platform incorporated capability. You could prompt a'One of the reasons why we are the leaders in robotic process automation and workflow automation today is because of some of the AI capabilities that we have in there.

And then start. So, I think a little bit of what has to happen is a cycle time where the optimization cycle finishes, the projects start, and then the projects wrap. And I think that's what at least on the cloud consumption side you're seeing. And on the per user side, it is slightly different, which is in per user there was a real acceleration in terms of purchases of.

Speaker 32: So that's sort of, I think, core Azure itself is being transformed for the core infrastructure business. It's being transformed, and so you can see us with data beyond Azure OpenAI services. Even think about what Synapse plus OpenAI APIs can do. We already have Power Platform incorporated capability. You could prompt a'One of the reasons why we are the leaders in robotic process automation and workflow automation today is because of some of the AI capabilities that we have in there.

Speaker 32: For user licenses, whether it is for knowledge workers or frontline workers, they're all now making sure that they're all getting used, and usage is going up. Like when we look at our Office 365 usage, all those numbers are going up year over year in a substantial way. For example, I gave you some of the Teams numbers. In fact, one of the things was, what will happen to Teams usage after?

Thanks, Amy. We'll now move over to the Q&A. Out of respect for others on the call, we request that participants please only ask one question. Joe, can you please repeat your instructions? Ladies and gentlemen, at this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue.

Speaker 32: GitHub Copilot is, in fact, you would say, the most at-scale LLM-based product out there in the marketplace today. And so we fully expect to sort of incorporate AI into every layer of the stack, whether it's in productivity, whether it's in our consumer services. And so we're excited about it. But I think that we're also excited about OpenAI's own innovation, right? So they commercialize their products. We're excited about the ChatGPT being built on Azure and having the traction it has. GitHub Copilot is, in fact, you would say, the most at-scale LLM-based product out there in the marketplace today.

Speaker 32: And so we fully expect to sort of incorporate AI into every layer of the stack, whether it's in productivity, whether it's in our consumer services. And so we're excited about it. But I think that we're also excited about OpenAI's own innovation, right? So they commercialize their products. We're excited about ChatGPT being built on Azure and having the traction it has. GitHub Copilot is, in fact, you would say, the most at-scale LLM-based product out there in the marketplace today. And so we fully expect to sort of incorporate AI at every layer of the stack, whether it's in productivity, whether it's in our consumer services.

Speaker 32: And so we're excited about it. But I think that we're also excited about OpenAI innovation, right? So they commercialize their products. We're excited about the ChatGPT being built on Azure and having the traction it has. So we look at both; there's an investment part to it, and there's a commercial partnership. But fundamentally, it's going to be something that's going to drive innovation and competitive differentiation in every 1 of the Microsoft solutions through leading in AI.

For user licenses, whether it is for knowledge workers or frontline workers. And again, they're all now making sure that they're all getting used, and usage is going up. Like when we look at our Office 365 usage, all those numbers are going up year over year in a substantial way. Like I gave you some of the Teams numbers. In fact, one of the things was, what will happen to Teams usage after.

Speaker 32: So we look at both; there's an investment part to it, and there's a commercial partnership. But fundamentally, it's going to be something that's going to drive innovation and competitive differentiation in every 1 of the Microsoft solutions through leading in AI.

Speaker 32: During the pandemic, guess what? They're up. And so, that is the good news. And now, once we cycle through that again, the seats will get added and premium. I got very, very excited about Teams Pro coming out in a couple of weeks. And those are all the things that people will be able to use to ensure that the art is also going up in value.

During the pandemic, guess what, they're up. And so, those are the good news. And now, once we cycle through that again, the seats will get added and premium. I got very, very excited about Teams Pro coming out in a couple of weeks. And those are all the things that people will be able to use to ensure that the art is also going up in value.

Speaker 32: And Mark, because I do think it's actually quite hard to separate from a driver's perspective how much is optimization versus macro. You know, it's all related when you start to say what's the best ROI I can get on every budget dollar I spend, and our job as a partner to so many of these customers is to help them do that. So we look at both; there's an investment part to it, and there's a commercial partnership. But fundamentally, it's going to be something that's going to drive innovation and competitive differentiation in every one of the Microsoft solutions through leading in AI.

Operator: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start button. One moment, please, while we poll for questions. Our first question comes from the line of Keith Weiss with Morgan Stanley. Please proceed. Excellent. Thank you guys for taking the time to answer the question. I was hoping we could delve into the expansion of the investment into OpenAI. Satya, I was hoping you could talk to us about, is there any expansion in the scope of what you guys are doing with OpenAI and the commitment that you guys are making in terms of sort of the compute capacity you're going to be giving to them? And then maybe, from an investor's perspective, how should we think about when this functionality is going to become, expand beyond just sort of the Azure OpenAI services, and where we're going to start to see some of the positive impacts on perhaps Bing or the productivity suite or more broadly across the solution portfolio? Thank you so much, Keith, for the question. So, as you know, we started the OpenAI partnership now, in 23 years, three and a half years ago, and we've actually been working very hard on a lot of elements of this partnership over the last three years.

And Mark, because I do think it's actually quite hard to separate from a driver's perspective, how much is optimization versus macro. You know, it's all related when you start to say what's the best ROI I can get on every budget dollar I spend, and our job as a partner to so many of these customers is to help them do that.

Speaker 32: So we look at both; there's an investment part to it, and there's a commercial partnership. But fundamentally, it's going to be something that's going to drive innovation and competitive differentiation in every one of the Microsoft solutions through leading in AI.

Speaker 32: So, Satya talked a bit about Azure. Let me talk a little about the per-user aspect, where it manifested in very high renewal rates and excellent suite performance at renewal, meaning what we tend to call internally as recapture.

Speaker 32: Our next question comes from the line of Brent Thill with Jefferies. Satya, can you give us your overall macro view? There were some comments you had made that concerned, I think, many about the state of the U.S. spending environment. I'm just curious if you could comment and follow up on what you're seeing there from a spending environment throughout the year. I think many came away with the impression that you were saying it's getting worse, not better. Can you just give us a little more color on that? Our next question comes from the line of Brent Thill with Jefferies.

Speaker 32: Satya, can you give us your overall macro view? There were some comments you had made that concerned, I think, many about the state of the U.S. spending environment. I'm just curious if you could comment and follow up on what you're seeing there just from a spending environment throughout the year. I think many came away with the impression that you were saying it's getting worse, not better. Can you just give us a little more color on that? Our next question comes from the line of Brent Thill with Jefferies.

So, Satya talked a bit about Azure. Let me talk a little about the per-user aspect, where it manifested in very high renewal rates and excellent suite performance at renewal, meaning what we tend to call internally as recapture.

Speaker 32: Our next question comes from Brent Thill with Jefferies. While we had some more challenges on maybe a standalone sale of a new product, where the cycle is going to be a little longer, right? You will have to show that cost savings. But the sweet sale, the value in that Satya, can you give us your overall macro view? There were some comments you had made that concerned, I think, many about the state of the U.S. spending environment. I'm just curious if you could comment and follow up on what you're seeing there from a spending environment throughout the year. I think many came away with the impression that you were saying it's getting worse, not better. Can you just give us a little more color on that?

While we had some more challenges on maybe a standalone sale of a new product, where the cycle is going to be a little longer, right? You will have to show that cost savings. But the sweet sale, the value in that...

Speaker 32: While we had some more challenges on maybe a standalone sale of a new product, where the cycle is going to be a little longer, right? You will have to show that cost savings. But the sweet sale, the value in that Satya, can you give us your overall macro view? There were some comments you had made that concerned, I think, many about the state of the U.S. spending environment. I'm just curious if you could comment and follow up on what you're seeing there just from a spending environment throughout the year. I think many came away with the impression that you were saying it's getting worse, not better. Can you just give us a little more color on that?

Speaker 32: It showed itself in terms of strong E5. You can see the ARPU growth, and you can see the consistency, potentially, in both renewal rates and, frankly, in Microsoft 365 performance.

It showed itself in terms of strong E5. You can see the ARPU growth, and you can see the consistency, potentially, in both renewal rates and, frankly, in Microsoft 365 performance.

Speaker 32: Thank you, Brent. First of all, I was making a comment that is sort of a global comment, not just a specific U.S. comment. I mean, there is only 1 law of gravity that I think all of us are subject to, which is inflation-adjusted economic growth in the world. And then how many times that do we grow? Because, as I said even in my comments, Brent, I fundamentally believe tech as a percentage of GDP is going to be much higher on a secular basis.

Speaker 32: Thank you very much. I appreciate it.

Speaker 32: Perfect. Thank you very much. I appreciate it. Yeah, thanks, Mark. Joe, next question, please.

Speaker 32: Thank you, Brent, and first of all, I would make a comment that is sort of a global comment, not just a specific U.S. comment. I mean, there is only 1 law of gravity that I think all of us are subject to, which is inflation-adjusted economic growth across the world. And then how many times that do we grow? Because, as I said even in my comments, Brent, I fundamentally believe tech as a percentage of GDP is going to be much higher on a secular basis.

Speaker 32: Our next question comes from the line of Kash Rangan with Goldman Sachs. Please proceed. Thank you, Brent, and first of all, I was making a comment that is sort of a global comment, not just a specific U.S. comment. I mean, there is only 1 law of gravity that I think all of us are subject to, which is inflation-adjusted economic growth in the world. And then how many times that do we grow? Because, as I said in my, I fundamentally believe tech as a percentage of GDP is going to be much higher, and on a secular basis.

Thank you very much. I appreciate it.

Perfect. Thank you very much. I appreciate it. Yeah, thanks, Mark. Joe, next question, please.

Speaker 32: Thank you, Brent, and first of all, I was making a comment that is sort of a global comment, not just a specific U.S. comment. I mean, there is only 1 law of gravity that I think all of us are subject to, which is inflation-adjusted economic growth in the world. And then how many times that do we grow? Because, as I said in my, I fundamentally believe tech as a percentage of GDP is going to be much higher, and on a secular basis. Thank you very much.

Our next question comes from the line of Kash Rangan with Goldman Sachs. Please proceed.

Speaker 32: Thank you very much. Satya, I'm curious if you could talk about how long the cycle time for optimization lasts. Are we talking about a couple of quarters, a few quarters, or multiple years? Because I do take your comment about tech spending as a percentage of global GDP going higher. So if that were to happen, how would you frame the duration of this optimization? The question is how many times it should be done, given the overall inflation-adjusted economic growth. So that's kind of how I look at it. Given that, I think the 2 things that we see, which we commented on in the last quarter, and it's even in the outlook, which is the thing that customers are doing is what they accelerated during the pandemic.

Speaker 32: Satya, I'm curious if you could talk about how long the cycle time for optimization lasts. Are we talking a couple of quarters, a few quarters, or multiple years? Because I do take your comment about tech spending as a percentage of global GDP going higher. So if that were to happen, how would you frame the duration of this optimization? So the question is how many times that is, given the overall inflation-adjusted economic growth. So that's kind of how I look at it. Given that, I think the 2 things that we see, which we commented on in the last quarter, and it's even in the outlook, which is the thing that customers are doing is what they accelerated during the pandemic. They are making sure that they're getting the most value out of it or optimizing it.

Thank you very much. Satya, I'm curious if you could talk about how long the cycle time for optimization lasts. Are we talking a couple of quarters, a few quarters, or multiple years? Because I do take your comment about tech spending as a percentage of global GDP going higher. So if that were to happen, how would you frame the duration of this optimization?

Speaker 32: They are making sure that they're getting the most value out of it or optimizing it. That's happening in the industry. Thank you so much. I mean, you know, I think that you can have a workload, optimize the workload, and start a new workload. So, the thing that I would say is, when you're done with optimizing a workload, that is when you are done with the cycle. So, I think if you say, "When did we enter this?", You know, we accelerated a bunch of workloads during the pandemic over a period of two weeks. So the question is how many times that was, given the overall inflation-adjusted economic growth.

Speaker 32: That's what is happening in the industry. Thank you so much. I mean, you know, I think that you can have a workload, optimize the workload, and start a new workload. So, the thing that I would say is, when you're done with optimizing a workload, that is when you are done with the cycle. So, I think if you say, when did we enter this? You know, we accelerated a bunch of workloads during the pandemic over a period of two weeks. So the question is how many times that is, given the overall inflation-adjusted economic growth. So that's kind of how I look at it.

That's happening in the industry. Thank you so much. I mean, you know, I think that you can have a workload, optimize the workload, and start a new workload. So, the thing that I would say is, when you're done with optimizing a workload, that is when you are done with the cycle. So, I think if you say, when did we enter this? You know, we accelerated a bunch of workloads during the pandemic over a period of two weeks.

Speaker 32: So that's kind of how I look at it. Given that, I think the 2 things that we see, which we commented on in the last quarter, and it's even in the outlook, which is the thing that customers are doing is what they accelerated during the pandemic. They are making sure that they're getting the most value out of it or optimizing it. So the question is how many times is it, given the overall inflation-adjusted economic growth? So that's kind of how I look at it. Given that, I think the 2 things that we see, we commented on that even in the last quarter, and it's even in the outlook, which is the thing that customers are doing is what they accelerated during the pandemic. They are making sure that they're getting the most value out of it or optimizing it.

Speaker 32: So the question is how many times that is, given the overall inflation-adjusted economic growth. So that's kind of how I look at it. Given that, I think the 2 things that we see, which we commented on in the last quarter, and it's even in the outlook, which is the thing that customers are doing is what they accelerated during the pandemic. They are making sure that they're getting the most value out of it or optimizing it. So the question is how many times that is, given the overall inflation-adjusted economic growth. So that's kind of how I look at it.

Speaker 32: Given that, I think the 2 things that we see, we commented on that even in the last quarter, and it's even in the outlook, which is the thing that customers are doing is what they accelerated during the pandemic. They are making sure that they're getting the most value out of it or optimizing it.

Speaker 32: And then also being a bit more cautious given the macroeconomic headwinds out there in the market. So given those 2 things, the point is, at some point, the optimizations will end. In fact, the money that they save in any optimization of any workload is what they'll plow into workloads, and those workloads will start ramping up. And so one of the key things we are watching for, Brent, is to make sure that we are gaining share in this space through our value propositions and even building loyalty with our customers so that, long term, we are well positioned for share gains.

Speaker 32: So that's sort of fundamentally how we view it, and then also being a bit more cautious given the macroeconomic headwinds out there in the market. So given those 2 things, the point is, at some point, the optimizations will end. In fact, the money that they save in any optimization of any workload is what they'll plow into workloads. And those workloads will start ramping up. And so one of the key things we are watching for, Brent, is to make sure that we are gaining share in this space through our value propositions and even building loyalty with our customers so that, long term, we are well positioned for share gains. So that's sort of fundamentally how we view it.

Speaker 32: Given that, I think the 2 things that we see, which we commented on in the last quarter, and it's even in the outlook, which is the thing that customers are doing is what they accelerated during the pandemic. They are making sure that they're getting the most value out of it or optimizing it.

Speaker 32: So the question is how many times that is, given the overall inflation-adjusted economic growth. So that's kind of how I look at it. Given that, I think the 2 things that we see, we commented on that even in the last quarter, and it's even in the outlook, which is the thing that customers are doing is what they accelerated during the pandemic. They are making sure that they're getting the most value out of it or optimizing it.

Satya Nadella: And so I think the way for our investors to see this is that we fundamentally believe that the next big platform wave, as I said, is going to be AI, and we strongly also believe a lot of enterprise value gets created by just being able to catch these waves and then have those waves impact every part of our tech stack and also create new solutions and new opportunities. So whenever we think about platform opportunities and platform shift opportunities, that's how we come at it: how can we essentially ride the wave of everything that we have today and make it more expansive, and then what new can be created? So if you take that lens.

Speaker 32: And then also being a bit more cautious given the macroeconomic headwinds out there in the market. So given those 2 things, the point is, at some point, the optimizations will end. In fact, the money that they save in any optimization of any workload is what they put into those workloads, and those workloads will start ramping up. And so one of the key things we are watching for, Brent, is to make sure that we are gaining share in this space through our value propositions and even building loyalty with our customers so that, long term, we are well positioned for share gains. So that's sort of fundamentally how we view it, time back, time back. I got it.

time back.

Got it. So, it's a temporary adjustment before we start to get the full effect of the next set of workloads. Good to know that. That's correct. Thank you. That's correct. Thank you.

Speaker 32: Thanks, Cash. Joe, next question, please. The next question comes from the line of Carl Kirsten with UBS. Please proceed. Thank you. This one's for Amy. Amy, given the obviously tough environment, it sounds like reaching that full fiscal year 20% constant currency commercial revenues guidance would be tough. Is that also true for the soft guidance? And then the other aspect I'd also say is simultaneously investing in this new AI trend because I don't think any application start that happens next is going to look like the application starts of 2019 or 2020. They're all going to have considerations around how my AI inference performance, cost, and model is going to look like.

Speaker 32: So, it's a temporary adjustment before we start to get the full effect of the next set of workloads. Good to know that. That's correct. Thank you. That's correct. Thank you. Got it. So, it's a temporary adjustment before we start to get the full effect of the next set of workloads. Good to know that. That's correct. Thank you. That's correct. Thank you.

Thanks, Cash. Joe, next question, please.

The next question comes from the line of Carl Kirsten with UBS. Please proceed. Thank you. This one's for Amy. Amy, given the obviously tough environment, it sounds like reaching that full fiscal year 20% constant currency commercial revenues guidance would be tough. Is that also true for the soft guidance for...

Satya Nadella: The core of Azure, or what is considered cloud computing, fundamentally changes its nature and how compute, storage, and network come together. That's, in some sense, under the radar, if you will. For the last three and a half, four years, we've been working very, very hard to build both the training supercomputers and now, of course, the inference infrastructure. Because once you use AI inside of your applications, it goes from just being training heavy to inference.

Speaker 32: And that's where we are well positioned again. So that's how I view it. The next question comes from the line of Carl Kirsten with UBS. Please proceed. Thank you. This one's for Amy. Amy, given the obviously tough environment, it sounds like reaching that full fiscal year 20% constant currency commercial revenues guidance would be tough. Is that also true for the soft guidance? And then the other aspect I'd also say is simultaneously investing in this new AI trend because I don't think any application start that happens next is going to look like the application starts of 2019 or 2020. They're all going to have considerations around how my AI inference performance, cost, and model is going to look like. And that's where we are well positioned again. So that's how I view it.

Speaker 32: 10% plus total revenue growth for the year. And if I could just sneak in a clarification, Amy, just because it's an important metric. When you talk about a four to five-point detail in Azure, that's off the 38% reported for December, right? Not off the 35 exit rate. Thank you. Total revenue growth for the year. If I could just sneak in a clarification, Amy, just because it's an important metric: When you talk about a four to five-point detail in Azure, that's based on the 38% reported for December, right? Not the 35% exit rate. Thank you. Total revenue growth for the year. If I could just sneak in a clarification, Amy, just because it's an important metric: When you talk about a four to five-point detail in Azure, that's based on the 38% reported for December, right? Not the 35% exit rate. Thank you.

Speaker 32: And then the other aspect I'd also say is simultaneously investing in this new AI trend because I don't think any application start that happens next is going to look like the application starts of 2019 or 2020. They're all going to have considerations around how is my AI inference performance, cost, and model going to look like? And that's where we are well positioned again. So that's how I view it. And then the other aspect I'd also say is simultaneously investing in this new AI trend because I don't think any application start that happens next is going to look like the application starts of 2019 or 2020.

Speaker 32: They're all going to have considerations around how my AI inference performance and cost model is going to look like. And that's where we are well positioned again. So that's how I view it. And then the other aspect I'd also say is simultaneously investing in this new AI trend because I don't think any application start that happens next is going to look like the application starts of 2019 or 2020. They're all going to have considerations around how my AI inference performance and cost model is going to look like. And that's where we are well positioned again. So that's how I view it.

10% plus total revenue growth for the year. And if I could just sneak in a clarification, Amy, just because it's an important metric. When you talk about a four to five-point detail in Azure, that's off the 38% reported for December, right? Not off the 35 exit rate. Thank you.

Total revenue growth for the year. If I could just sneak in a clarification, Amy, just because it's an important metric: When you talk about a four to five-point detail in Azure, that's based on the 38% reported for December, right? Not on the 35% exit rate. Thank you.

Satya Nadella: So that's sort of, I think, core Azure itself is being transformed, but the whole infrastructure business is being transformed. And so you can see us, you know, with data beyond Azure OpenAI services even. Think about what Synapse plus OpenAI APIs.

Speaker 32: It's off, Carl. Let me just - the first half of your question - give me a second on the second half of your question, which is: Is the guide off the exit rate? It's off the exit rate on Azure by four to five points, just to make sure that is clear. The market, you all are better readers of, quite frankly, what's happening out there. We can tell you what we see. What we see is optimization and some cautious approaches to new workloads, and that will cycle through, but we do fundamentally believe that on a long-term basis, as a percentage of GDP, tech spend is going to go up.

It's off, Carl. Let me just - the first half of your question - give me a second on the second half of your question, which is: Is the guide off the exit rate? It's off the exit rate on Azure by four to five points, just to make sure that is clear.

Speaker 32: The market, you all are better readers of, quite frankly, what's happening out there. We can tell you what we see. What we see is optimization and some cautious approach to new workloads, and that will cycle through, but we do fundamentally believe, on a long-term basis, as a percentage of GDP, tech spend is going to go up. The market, you all are better readers of, quite frankly, what's happening out there. We can tell you what we see. What we see is optimization and some cautious approaches to new workloads, and that will cycle through, but we do fundamentally believe that on a long-term basis, as a percentage of GDP, tech spend is going to go up.

Satya Nadella: We already have a power platform incorporated capability. You can prompt a workflow. One of the reasons why we're the leaders in robotic process automation and workflow automation today is because of some of the AI capabilities that we have in there. GitHub Copilot is, in fact, you would say the most at-scale LLM-based product out there in the marketplace today.

Speaker 32: In terms of thinking about total year revenue, you know, I did not comment on full-year revenue. As we continue, I think, we really just watch the WICOS PC market as it returns to pre-pandemic levels. Outside of that, as you can see, the trends are relatively consistent.

In terms of thinking about total year revenue, you know, I did not comment on full-year revenue. As we continue, I think, we really just watch the WICOS PC market as it returns to pre-pandemic levels. Outside of that, as you can see, the trends are relatively consistent.

Speaker 32: Our next question comes from Mark Moerdler with Bernstein. So, in some ways, it's important because when you look at the operating income margin guidance that I talked about, the fact that we are guiding to really only one point. I'd like to follow up a little bit on this question relating to optimization. I know we saw some slowing this quarter. You're guiding to some slowing next quarter in Cloud and Azure. How much of that is -- do you believe at this point that people are truly optimizing what they've already bought and stepping that before that versus how much of that is due to macro factors themselves specifically impacting demand?

Satya Nadella: And so we fully expect us to sort of incorporate AI at every layer of the stack, whether it's in productivity, whether it's in our consumer services. And so we're excited about it. But I think that we're also excited about OpenAI's own innovation, right? So they commercialize their products.

Speaker 32: So, in some ways, it's important because when you look at the operating income margin guidance that I talked about, the fact that we are guiding to really only one point. I'd like to follow up a little bit on this question relating to optimization. I know we saw some slowing this quarter, but you're guiding to some slowing next quarter in Cloud and Azure. How much of that is -- do you believe at this point that people are truly optimizing what they've already bought and stepping on that before that versus how much of that is due to macro factors themselves specifically impacting demand?

Speaker 32: I'd like to follow up a little bit on this question relating to optimization. I know we saw some slowing this quarter. You're guiding to some slowing next quarter in Cloud and Azure. How much of that is -- do you believe at this point that people are truly optimizing what they've already bought and stepping that before that versus how much of that is due to macro factors themselves specifically impacting demand?

Speaker 32: Our next question comes from the line of Mark Moerdler with Bernstein. I'd like to follow up a little bit on this question relating to optimization. I know we saw some slowing this quarter. You're guiding to some slowing next quarter in Cloud and Azure. How much of that is -- do you believe at this point that people are truly optimizing what they've already bought and stepping that before that versus how much of that is due to macro factors themselves specifically impacting demand? I'd like to follow up a little bit on this question relating to optimization.

So, in some ways, it's important because when you look at the operating income margin guidance that I talked about, the fact that we are guiding to really only one point.

Speaker 32: I know we saw some slowing this quarter, but you're guiding to some slowing next quarter in Cloud and Azure. How much of that is -- do you believe at this point that people are truly optimizing what they've already bought and stepping that before that versus how much of that is due to macro factors themselves specifically impacting demand? of margin deceleration for the year on a constant currency basis.

Satya Nadella: We're excited about the chat GPs. We look to, you know, both there's an investment part to it and there's a commercial partnership, but fundamentally, it's going to be something that's going to drive innovation and competitive differentiation in every one of the Microsoft solutions through leading in AI. Outstanding. Thank you, guys. Thanks, Keith. Joe, next question, please. Our next question comes from the line of Brent Till with Jefferies. Please proceed. Thanks, Satya. Can you give us your overall macro view?

Speaker 32: With probably over $2 billion of headwinds from the OEM business compared to what we had anticipated heading into the year, the focus on margins, the focus on prioritization, and the focus on putting our investments where we know they have a high return actually makes me feel quite good.

of margin deceleration for the year on a constant currency basis.

With probably over $2 billion of headwinds from the OEM business from what we had anticipated heading into the year, the focus on margins, the focus on prioritization, the focus on putting our investments into where we know they have high return, actually makes me feel quite good.

Speaker 32: I'd say 2 things, and then Amy, please feel free to add. One is that it absolutely starts with workloads that they have at scale just because of the visibility one has on what's driving essentially the consumption meters. And there's real guidance that we ourselves emit in the product to say, here are the things that you do to optimize your billing. And so that's sort of the fundamental thing. When we say do more with less and how can we help, that's sort of the first place customers go to. About the place that it puts us in as we exit the year in terms of, and the right energy, right, that we're leaving the year in Q4 on leverage.

Speaker 32: I'd say 2 things, and then Amy, please feel free to add. One is that it absolutely starts with workloads that they have at scale just because of the visibility one has on what's driving essentially the consumption meters. And there's real guidance that we ourselves emit in the product to say, here are the things that you do to optimize your billing. And so that's sort of the fundamental thing. When we say do more with less and how we can help, that's sort of the first place customers go to. I'd say 2 things, and then Amy, please feel free to add.

Speaker 32: About the place that puts us in as we exit the year in terms of, and the right energy, right, that we're leaving the year in Q4 on leverage. I'd say 2 things, and then Amy, please feel free to add. One is, it absolutely is -- starts with workloads that they have at scale just because of the visibility one has on what's driving essentially the consumption meters. And there's real guidance that we ourselves emit in the product to say, here are the things that you do to optimize your billing. And so that's sort of what the fundamental thing is. When we say do more with less and how can we help, that's sort of the first place customers go to.

Speaker 32: I'd say 2 things, and then Amy, please feel free to add. One is that it absolutely starts with workloads that they have at scale just because of the visibility one has on what's driving essentially the consumption meters. And there's real guidance that we ourselves emit in the product to say, here are the things that you do to optimize your billing. And so that's sort of the fundamental thing. When we say do more with less and how we can help, that's sort of the first place customers go to.

Speaker 32: I'd say 2 things, and then Amy, please feel free to add. One is, it absolutely starts with workloads that they have at scale just because of the visibility 1 has on what's driving essentially the consumption meters. And there's real guidance from us in the product to say, here are the things that you do to optimize your billing. And so -- so that's sort of the fundamental thing. When we say do more with less and how we can help, that's sort of the first place customers go to.

Speaker 32: One is, it absolutely is -- starts with workloads that they have at scale just because of the visibility 1 has on what's driving essentially the consumption meters. And there's real guidance that we ourselves in the product give to say, here are the things that you can optimize your billing. And so -- so that's sort of what the fundamental thing is. When we say do more with less and how can we help, that's sort of the first place customers go.

About the place that puts us in as we exit the year in terms of, and the right energy, right, that we're leaving the year in Q4 on leverage.

Speaker 32: Super helpful. Thanks, Amy.

Satya Nadella: There were some comments you had made that concerned, I think, many about the state of the U.S. spending environment. I'm just curious if you could comment and follow up on what you're seeing there just from a spend environment throughout the year. I think many people came away with the impression that you were saying it's getting worse, not better. Can you just give us a little more color on that?

Speaker 32: Thank you. Thanks, Carl. Next question, please. Our next question comes from the line of Brad Zelnick with Deutsche Bank. Please proceed. Great. Thanks very much. Amy, I wanted to ask about the expense actions that you announced last week. Obviously, not a decision that you would take lightly. How were you thinking about headcount for the remainder of the year?

Speaker 32: Thanks, Carl. Next question, please. Our next question comes from the line of Brad Zelnick with Deutsche Bank. Please proceed. Great. Thanks very much. Amy, I wanted to ask about the expense actions that you announced last week. Obviously, this is not a decision that you would take lightly. How are you thinking about headcount for the remainder of the year?

Super helpful. Thanks, Amy.

Thank you.

Thanks, Carl. Next question, please.

Our next question comes from the line of Brad Zelnick with Deutsche Bank. Please proceed. Great. Thanks very much. Amy, I wanted to ask about the expense actions that you announced last week, obviously not a decision that you would take lightly. How were you thinking about headcount for the remainder of the year?

Speaker 32: And then the next piece, really, I think, is going to be about how they take the optimization that they get and the savings they get in 1 workload and what new project starts. And that's where I think there's a reprioritization. When should we start the new projects? Those are 2 things that are happening simultaneously. They don't perfectly match, but one of the things is that they're looking to back some savings on some workloads and then start. So that's where I think a little bit of what has to happen is the cycle time where the optimization cycle finishes, the projects start, and then the projects ramp up.

Speaker 32: And then the next piece, really, I think, is going to be about how they take the optimization that they get and the savings they get in 1 workload and what new project starts. And that's where I think there's a reprioritization. When should we start the new projects? Those are 2 things that are happening simultaneously. They don't perfectly match, but one of the things is that they're looking to make some savings on some workloads and then start.

Speaker 32: So that's where I think a little bit of what has to happen is the cycle time where the optimization cycle finishes, the projects start, and then the projects ramp up.

Satya Nadella: Thank you. Thank you, Brenton. You know, first of all, I was making a comment that is sort of a global comment, not just a specific U.S. comment. I mean, there is only one law of gravity that I think all of us are subject to, which is inflation-adjusted economic growth in the world. And then how many times that do we grow?

Speaker 32: And the possibility of further expense actions if necessary, and what criteria do you consider in making these decisions? Thanks. Uh, Brad, listen, thanks for that question. You know, obviously, as we think about the Q4 guidance around low single-digit operating expense growth.

Speaker 32: And then the next piece, really, I think, is going to be about how they take the optimization that they get and the savings they get from the workload and what new project starts. And that's where I think there's a reprioritization. When should we start the new projects? Those are 2 things that are happening simultaneously. They don't perfectly match, but one of the things is that they're looking to back some savings on some workloads and then start. So that's where I think a little bit of what has to happen is the cycle time where the optimization cycle finishes, the projects start, and then the projects ramp up.

And the possibility of further expense actions if necessary, and what criteria do you consider in making these decisions? Thanks. Uh, Brad, listen, thanks for that question. You know, obviously, as we think about the Q4 guidance around low single-digit operating expense growth.

Speaker 32: We start to, as you know, sort of lap certain real acceleration points that we had last year, and we lap the acquisitions of both Nuance and Xandr. So, by the time we get to the end of Q4, you'll see very moderate headcount growth on a year-over-year basis. And I think that's what, at least on the cloud consumption side, you're seeing. And on the per user side, it's slightly different, which is that in per user also, there was real acceleration when it comes to purchases of per user licenses, whether it is for knowledge workers or frontline workers. And again, they're all now making sure that they're all getting used, and the usage is going up.

Satya Nadella: Because, as I said, even in my conference, I fundamentally believe, you know, tech as a percentage of GDP is going to be much higher and on a secular basis. So the question is, how many times is it given the overall inflation-adjusted economic growth? So that's kind of how I look at it. Given that, I think the two things that we see, we commented on that even in the last quarter, and it's even in the outlook, which is the thing that customers are doing. This is what they accelerated during the pandemic.

We start to, as you know, sort of lap certain real acceleration points that we had last year, and we lap the acquisitions of both Nuance and Xandr. So, by the time we get to the end of Q4, you'll see very moderate headcount growth on a year-over-year basis.

Speaker 32: In addition to some of the prioritization decisions we've made, and you're right, we take decisions like the one we had to make to get our cost structure more in line with revenue incredibly seriously because we have lots of very talented people who were impacted by that. And so I do think

Speaker 32: And I think that's what, at least on the cloud consumption side, you're seeing. And on the per user side, it's slightly different, which is that in per user also, there was real acceleration when it comes to purchases of per user licenses, whether it is for knowledge workers or frontline workers. And again, they're all now making sure that they're all getting used, and the usage is going up. And I think that, at least on the cloud consumption side, you're seeing that. And on the per user side, it's slightly different, which is in the per user side. There was a real acceleration when it comes to purchases of per user licenses, whether it is for knowledge workers or frontline workers. And again, they're all now making sure that they're all getting used, and the usage is going up.

In addition to some of the prioritization decisions we've made. And you're right. We take decisions like the one we had to make to get our cost structure more in line with revenue incredibly seriously because we have lots of very talented people who were impacted by that. And so I do think

Satya Nadella: They're making sure that they're getting the most value out of it or optimizing it, and then also being a bit more cautious given the macroeconomic headwinds out there in the market. So given those two things, the point is that the optimizations will end. In fact, the money that they save in any optimization of any workload is what they'll plow into workloads, and those workloads will start ramping up. And so one of the key things we are watching for, Brent, is to make sure that we are gaining share in this space through our value propositions and even building loyalty with our customers so that, long term, we are well positioned for share gains. So that's sort of fundamentally how we view it.

Speaker 32: We feel confident in that exit rate. As I said, it will certainly imply that year-over-year growth, as we lap some of the investments we have made, will be quite small. In that exit rate, as I said, it will certainly imply that year-over-year growth as we lap some of the investments we've made will be quite small. Thanks for the color. Like when we look at our Office 365 usage, all those numbers are pretty up year-over-year in a substantial way. Like I gave you some of the Teams numbers. In fact, one of the things was, what will happen to Teams usage after the pandemic.

We feel confident in that exit rate. As I said, it will certainly imply that year-over-year growth, as we lap some of the investments we have made, will be quite small.

Speaker 32: When we look at our Office 365 usage, all those numbers are pretty up year-over-year in a substantial way. For example, I gave you some of the Teams numbers. In fact, one of the things was what will happen to Teams usage after the pandemic? Guess what? They're up. And so that's good news. And now, once we cycle through that again, the seats will get added and premium, like I'm very, very excited about Teams Pro coming out in a couple of weeks.

Speaker 32: And those are all the things that people will be able to sort of use to ensure that the ARPUs are also going up a bit in value.

In that exit rate, as I said, it will certainly imply that year-over-year growth as we lap some of the investments we've made will be quite small. Thanks for the color.

Speaker 32: Thanks, Brad. Joe, next question, please. Our next question comes from the line of Brad Reback with Stifel. Please proceed.

Speaker 32: When we look at our Office 365 usage, all those numbers are pretty up year-over-year in a substantial way. For example, I gave you some of the Teams numbers. In fact, one of the things was, what will have Teams usage after the pandemic? Guess what? They're up. And so that is the good news. And now, once we cycle through that again, the seats will get added and premium, like I'm very, very excited about Teams Pro coming out in a couple of weeks. And those are all the things that people will be able to sort of use to ensure that the ARPUs are also going up a bit.

Speaker 32: When we look at our Office 365 usage, all those numbers are pretty up year-over-year in a substantial way. For example, I gave you some of the Teams numbers. In fact, one of the things was, what will have Teams usage after the pandemic? Guess what? They're up. And so that is the good news. And now, once we cycle through that again, the seats will get added and premium, like I'm very, very excited about Teams Pro coming out in a couple of weeks.

Speaker 32: And those are all the things that people will be able to sort of use to ensure that the ARPUs are also going up a bit in value.

Speaker 32: Guess what? They're up. And so those are -- that's good news. And now, once we cycle through that again, the seats will get added and premium, like I'm very, very excited about Teams Pro coming out in a couple of weeks. And those are all the things that people will be able to sort of use to ensure that the ARPUs are also going up a bit in value.

Thanks, Brad. Joe, next question, please. Our next question comes from the line of Brad Reback with Stifel. Please proceed.

Speaker 32: Great, thank you very much. Regarding Office 365 commercial, as you guys are approaching 400 million seats and the E5 business is really starting to accelerate, with that consolidated expense ROI that you're putting forth, should we think about the growth there as more evenly balanced between seats and... ARPU going forward or should we still continue to save your seats? Thanks. Yeah, that's a good question, especially because this quarter you started to see a little bit more of that ARPU influence. And, as you might guess, Mark, because I do think it's actually quite hard to separate from a driver perspective how much is optimization versus macro.

Great, thank you very much. Regarding Office 365 commercial, as you guys are approaching 400 million seats and the E5 business is really starting to accelerate, with that consolidated expense ROI that you're putting forth, should we think about the growth there as more evenly balanced between seats and...?

Speaker 32: That exit rate, as I said, will certainly imply that year-over-year growth as we lap some of the investments we've made will be quite small. Thanks for the color.

Satya Nadella: And then the other aspect I'd also say is simultaneously investing in this new AI trend because I don't think any application start that happens next is going to look like the application starts of 2019 or 2020. They're all going to have considerations around how my AI inference performance, cost, and model is going to look like. And that's where we are well positioned again. So that's how I view it. The market, you know; you're all better readers of, quite frankly, what's happening out there.

Speaker 32: It's all related when you start to say what's the best ROI I can get on every budget dollar I spend, and our job as a partner to so many of these customers is to help them do that. So Satya has talked a bit about Azure. ARPU going forward or should we still continue to save your seats? Thanks. Yeah, that's a good question, especially because this quarter you started to see a little bit more of that ARPU influence. And, as you might guess, Mark, because I do think it's actually quite hard to separate from a driver perspective how much is optimization versus macro. It's all related when you start to say what's the best ROI I can get on every budget dollar I spend, and our job as a partner to so many of these customers is to help them do that. So Satya has talked a bit about Azure.

ARPU going forward or still to continue to save your seats? Thanks. Yeah, that's a good question, especially because this quarter you started to see a little bit more of that ARPU influence. And as you might...

Speaker 32: You might have gathered from your question, and I'll just reinforce it. As we see some of these moderating seat growth, whether that's some of the new skewed weakness that we had talked about, some of the standalone stuff, you're starting to also see E5R2 happen at the same time. So it does. And Mark, because I do think it's actually quite hard to separate from a driver perspective how much is optimization versus macro. It's all related when you start to say what's the best ROI I can get on every budget dollar I spend, and our job as a partner to so many of these customers is to help them do that. So Satya has talked a bit about Azure.

Speaker 32: And Mark, because I do think it's actually quite hard to separate from a driver's perspective how much is optimization versus macro. It's all related when you start to say what's the best ROI I can get on every budget dollar I spend, and our job as a partner to so many of these customers is to help them do that. So Satya has talked a bit about Azure, and Mark, because I do think it's actually quite hard to separate from a driver perspective how much is optimization versus macro. It's all related when you start to say what's the best ROI I can get on every budget dollar I spend, and our job as a partner to so many of these customers is to help them do that. So Satya has talked a bit about Azure.

Might have gathered from your question, and I'll just reinforce it. As we see some of these moderating seat growth, whether that's some of the new skewed weakness that we had talked about, some of the standalone stuff, you're starting to also see E5R2 happen at the same time. So it does.

Speaker 32: Create some stability in that Office 365 commercial revenue number. So, we're still seeing good seat growth, growth across all workloads. As you're pointing out, we're getting further into the E5 suite, where we've seen, I want to say, let me talk a little bit about per user, where the way it showed itself was we had very high renewal rates and very good suite performance at renewal, meaning what we tend to call internally recapture. While we had some more challenges on maybe a standalone sale of a new product, where the cycle is going to be a little longer, right, and you're going to have to show that cost savings, the suite sale, the value in that showed itself in terms of strong E5. You can see the ARPU growth, and you can see the potential for consistency in both renewal rates and in, frankly, Microsoft 365 performance.

Speaker 32: Let me talk a little bit about per user cost savings, where the way it showed itself was that we had very high renewal rates and very good suite performance at renewal, meaning what we tend to call internally recapture. While we had some more challenges on maybe a standalone sale of a new product, where the cycle is going to be a little longer, right, and you're going to have to show that cost savings. But the suite sale, the value in that showed itself in terms of strong E5. You can see the ARPU growth, and you can see the potential for both renewal rates and in, frankly, the Microsoft 365 performance.

Satya Nadella: We can tell you what we see. What we see is optimization and some cautious approach to new workloads that will cycle through. But we do fundamentally believe, on a long-term basis, as a percentage of GDP, tech spend is going to go up. Thanks, Brent. Joe, next question, please. Our next question comes from the line of Mark Moerdler with Bernstein.

Create some stability in that Office 365 commercial revenue number. So, we're still seeing good seat growth, growth across all workloads. As you're pointing out, we're getting further into the E5 suite, where we've seen, I want to say.

Speaker 32: Let me talk a little bit about per user cost savings, where the way it showed itself was that we had very high renewal rates and very good suite performance at renewal, meaning what we tend to call internally recapture. While we had some more challenges on maybe a standalone sale of a new product where the cycle is going to be a little longer, right, and you're going to have to show that cost savings. But the suite sale, the value in that showed itself in terms of strong E5. You can see the ARPU growth, and you can see the potential for both renewal rates and in, frankly, the Microsoft 365 performance.

Four or five really good quarters of E5 adoption. The value there is just very high for customers in this environment, between analytics, security, and I think, you know, we've given some good security data points in terms of adoption and voice. This is a place where customers can save money by...

Amy E. Hood: Please proceed. Thank you very much. I'd like to follow up a little bit on this question relating to optimization.

Speaker 32: Let me talk a little bit about per user cost savings, where the way it showed itself was that we had very high renewal rates and very good suite performance at renewal, meaning what we tend to call internally recapture. While we had some more challenges on maybe a standalone sale of a new product where the cycle is going to be a little longer, right, and you're going to have to show that cost savings. But the suite sale, the value in that showed itself in terms of strong E5. You can see the ARPU growth, and you can see the potential for both renewal rates and in, frankly, the Microsoft 365 performance.

Amy E. Hood: I know we saw some slowing this quarter. You're guiding to some slowing next quarter in cloud and Azure. How much of that is, do you believe at this point, truly people optimizing what they've already bought and stepping back before that versus how much of that is due to macro factors themselves specifically impacting demand? Thank you very much. Let's say two things, and then Amy, please feel free to add.

Speaker 32: Four or five really good quarters of E5 adoption. The value there is just very high for customers in this environment, between analytics, and security. And I think, you know, we've given some good security data points in terms of adoption and voice. This is a place where customers can save money by moving to this suite. I do think you're starting to see some of that ARPU help. And we're also investing outside of Microsoft 365 in other per-user workloads. Viva is a new suite, Power Platform is on its own, and there are even standalone offers like Teams Pro.

Speaker 32: Our next question comes from Kash Rangan with Goldman Sachs. Satya, I'm curious if you could talk about how long the cycle time for optimization lasts. Are we talking about a couple of quarters, a few quarters, or multiple years? Because I do take your comment about tech spending as a percentage of global GDP going higher. So if that were to happen, this -- how do you frame the duration of this optimization that's happening in the industry? Our next question comes from the line of Kash Rangan with Goldman Sachs. Satya, I'm curious if you could talk about how long the cycle time for optimization lasts.

Speaker 32: Are we talking about a couple of quarters, a few quarters, or multiple years? Because I do take your comment about tech spending as a percentage of global GDP going higher. So if that were to happen, this -- how do you frame the duration of this optimization that's happening in the industry? Our next question comes from the line of Kash Rangan with Goldman Sachs. Our next question comes from Kash Rangan with Goldman Sachs. Satya, I'm curious if you could talk about how long the cycle time for optimization lasts. Are we talking a couple of quarters, a few quarters, or multiple years?

Speaker 32: Because I do take your comment about tech spending as a percentage of global GDP going higher. So if that were to happen, this -- how do you frame the duration of this optimization that's happening in the industry? Satya, I'm curious if you could talk about how long the cycle time for optimization lasts. Are we talking a couple of quarters, a few quarters, or multiple years? Because I do take your comment about tech spending as a percentage of global GDP going higher. So if that were to happen, this -- how do you frame the duration of this optimization that's happening in the industry?

By moving to this suite, I do think you're starting to see some of that ARPU help. And we're also investing outside of Microsoft 365 in other per-user workloads. Viva is a new suite, Power Platform is on its own, and there are even standalone offers like Teams Pro.

Speaker 32: Our next question comes from Kash Rangan with Goldman Sachs. Satya, I'm curious if you could talk about how long the cycle time for optimization lasts. Are we talking about a couple of quarters, a few quarters, or multiple years? Because I do take your comment about tech spending as a percentage of global GDP going higher. So if that were to happen, this -- how do you frame the duration of this optimization that's happening in the industry? Satya, I'm curious if you could talk about how long the cycle time for optimization lasts. Are we talking about a couple of quarters, a few quarters, or multiple years? Because I do take your comment about tech spending as a percentage of global GDP going higher. So if that were to happen, this -- how do you frame the duration of this optimization that's happening in the industry?

Satya Nadella: One is, it absolutely starts with workloads that they have at scale, just because of the visibility one has on what's driving, essentially, the consumption meters. And there's real guidance that we ourselves emit in the product to say, here are the things that you could do to optimize your billing. And so that's sort of what the fundamental thing is. When we say do more with less, and how can we help, that's sort of the first place customers go. And then the next piece, really, I think, is going to be about how they take the optimization that they get and the savings they get in one workload and what new project starts. And that's where I think there's a reprioritization. When should we start a new project? Those are two things that are happening simultaneously. They don't perfectly match.

Speaker 32: Satya, I'm curious if you could talk about how long the cycle time for optimization lasts. Are we talking a couple of quarters, a few quarters, or multiple years? Because I do take your comment about tech spending as a percentage of global GDP going higher. So if that were to happen, this -- how do you frame the duration of this optimization that's happening in the industry? Satya, I'm curious if you could talk about how long the cycle time for optimization lasts. Are we talking a couple of quarters, a few quarters, or multiple years? Because I do take your comment about tech spending as a percentage of global GDP going higher. So if that were to happen, this -- how do you frame the duration of this optimization that's happening in the industry?

Speaker 32: Our next question comes from the line of Tyler Radke with Citi. Please proceed.

Speaker 32: I mean, I think that you can -- you have a workload, you optimize the workload, and you start a new workload. So the thing that I would say is when you're done with optimizing a workload is when you are done with the cycle. So I think if you sort of say when we entered this -- we accelerated a bunch of workloads during the pandemic over a period of 2 years. So we are optimizing.

Our next question comes from the line of Tyler Radke with Citi. Please proceed.

Speaker 32: Thank you for taking the question. I wanted to ask about how your visibility has changed in terms of some of the larger Azure customer ramps. Could you please comment on the extent to which those large customer ramps, or if any of those projects, are getting put on pause?

Speaker 32: So the thing that I would say is when you're done optimizing a workload is when you are done with the cycle. So I think if you sort of say, when did we enter this? We accelerated workloads during the pandemic over a period of 2 years. So we are optimizing. I mean, I think that you can -- you have a workload, you optimize the workload, and you start a new workload. So the thing that I would say is when you're done optimizing a workload is when you are done with the cycle. So I think if you sort of say, when did we enter this? We accelerated workloads during the pandemic over a period of 2 years. So we are optimizing.

Thank you for taking the question. I wanted to ask about how your visibility has changed in terms of some of the larger Azure customer ramps. Could you please comment on the extent to which those large customer ramps, or if any of those projects, are getting put on pause? Then

Speaker 32: Is there any way to roughly quantify AI's potential contribution, or perhaps the GPU-powered contribution, to Azure that you're expecting over the coming quarters? Thank you.

Satya Nadella: But one of the things is that they're looking to bank some savings on some workloads, and then start. So that's where I think a little bit of what has to happen is a cycle time, where the optimization cycle finishes, the projects start, and then the projects wrap. And I think that that's what, at least on the cloud consumption side, you're seeing. And on the per-user side, it's slightly different, which is that in the per-user side, there was a real acceleration in terms of purchases of per-user licenses, whether it is for knowledge workers or frontline workers.

Is there any way to roughly quantify the AI's potential contribution, or perhaps the GPU-powered contribution, to Azure that you're expecting over the coming quarters? Thank you.

Speaker 32: I don't think we're going to take 2 years to optimize, but we're going to take this year to optimize. And then as we optimize, the new projects start, and the new project starts don't start instantly at their peak usage; they start, and then they scale. And so those are the 2 cycles that will happen where there will be a time block. In the second piece, I think it's I don't think we're going to take 2 years to optimize, but we're going to take this year to optimize. And then, as we optimize, new projects start, and the new project starts don't start instantly at their peak usage.

Speaker 32: They start, and then they scale. And so those are the 2 cycles that will happen where there will be a time lag. In the second piece, I think it's I don't think we're going to take 2 years to optimize, but we're going to take this year to optimize. And then, as we optimize, the new projects start, and the new project starts don't start instantly at their peak usage. They start, and then they scale. And so those are the 2 cycles that will happen where there will be a time lag.

Speaker 32: I don't think we're going to take 2 years to optimize, but we're going to take this year to optimize. And then as we optimize, the new projects start, and the new project starts don't start instantly at their peak usage; they start, and then they scale. And so those are the 2 cycles that will happen where there will be a time lag. It is too early to start separating AI from the rest of the workload. I mean, even the workloads themselves; AI is just going to be a core part of a workload on Azure, rather than just AI alone.

Speaker 32: It is too early to start separating AI from the rest of the workload. I mean, even the workloads themselves; AI is just going to be a core part of a workload on Azure, rather than just AI alone. So in other words, if you have an application that's using a bunch of inferences, let's say, it's also going to have a bunch of storage, and it's going to have a bunch of other computation beyond that. Got it. So it's a temporary adjustment before we start to get the full effect of the next set of workloads. Good to know that

In the second piece, I think it's...

It is too early to start separating AI from the rest of the workload. I mean, even the workloads themselves; AI is just going to be a core part of a workload in Azure, rather than just AI alone. So in other words, if you have an application that's using a bunch of inferences, let's say, it's also going to have a bunch of storage, and it's going to have a bunch of other compute beyond that.

Speaker 32: So in other words, if you have an application that's using a bunch of inferences, let's say, it's also going to have a bunch of storage, and it's going to have a bunch of other computation beyond that. Got it. So it's a temporary adjustment before we start to get the full effect of the next set of workloads. Good to know that GPU inferencing, if you will.

Speaker 32: GPU inferencing, if you will. So, I think over time, obviously, every app is going to be an AI app. That is, I believe, the best way to think about this transformation. So it's a temporary adjustment before we start to get the full effect of the next set of workloads. Good to know that I understand. So it's a temporary adjustment before we start to get the full effect of the next set of workloads. Good to get that. That's correct. That's correct.

Satya Nadella: And again, we're all now making sure that they're all getting used, and the usage is going up. Like, when we look at our Office 365 usage, all those numbers are pretty, you know, up year over year in a substantial way. Like, I gave you some of the Teams numbers. In fact, one of the things was, what will happen to Teams usage after a pandemic? Guess what?

Speaker 32: So, I think over time, obviously, every app is going to be an AI app. That is, I believe, the best way to think about this transformation. I understand. So it's a temporary adjustment before we start to get the full effect of the next set of workloads. It's good to get that.

Speaker 32: I understand. So it's a temporary adjustment before we start to get the full effect of the next set of workloads. Good to get that. That's correct. That's correct.

Speaker 32: That's correct. That's correct.

Speaker 32: The next question comes from Karl Keirstead with UBS. In your characterization of the large customers, whether there are any changes in their trajectory, I would say, I would point back to, I think, some of the commentary around every large customer looking to optimize the workloads that they have at scale today and reinvest some of the money they save into new projects. In your characterization of the large customers, whether there are any changes in their trajectory, I would say, I would point back to, I think, some of the commentary around every large customer looking to optimize the workloads that they have at scale today and reinvest some of the money they save into new projects.

GPU inferencing, if you will. So, I think over time, obviously, every app is going to be an AI app. That is, I believe, the best way to think about this transformation.

Speaker 32: This one is for Amy. Amy, given the obviously tough environment, it sounds like reaching that full fiscal year 20% constant currency Commercial Revs guide would be tough. Is that also true for the soft guidance for 10%-plus total revenue growth for the year? And if I could just sneak in a clarification, Amy, just because it's an important metric. When you talk about a 4- to 5-point decel in Azure, that's off of the 38% reported for December, right, not off the 35% exit rate? That's correct. That's correct. That's the right answer. That's correct. That's the right answer. That's correct.

Speaker 32: That's correct. That's correct. The next question comes from the line of Karl Keirstead with UBS. The next question comes from the line of Karl Keirstead with UBS.

Speaker 32: The next question comes from the line of Karl Keirstead with UBS. The next question comes from the line of Karl Keirstead with UBS.

Speaker 32: The next question comes from the line of Karl Keirstead with UBS. This one is for Amy. Amy, given the obviously tough environment, it sounds like reaching that full fiscal year 20% constant currency Commercial Revs guide would be tough. Is that also true for the soft guidance for 10%-plus total revenue growth for the year? And if I could just sneak in a clarification, Amy, just because it's an important metric. When you talk about a 4- to 5-point decel in Azure, that's off of the 38% reported for December, right, not off the 35% exit rate? This 1 is for Amy.

Speaker 32: Amy, given the obviously tough environment, it sounds like reaching that full fiscal year 20% constant currency Commercial Revs guide would be tough. Is that also true for the soft guidance for 10%-plus total revenue growth for the year? And if I could just sneak in a clarification, Amy, just because it's an important metric. When you talk about a 4- to 5-point decel in Azure, that's off of the 38% reported for December, right, not off the 35% exit rate? It's all -- Karl, let me just -- the first half of your question, give me a second. On the second half of your question, which is the guide to the exit rate, it's off the exit rate on Azure of 4 to 5 points, just to make sure that is clear. In terms of thinking about total year revenue, right, I did not comment on full year revenue as we continue, I think, really just to watch the Windows PC market as it returns to pre-pandemic levels.

In your characterization of the large customers, whether there are any changes in their trajectory, I would say, I would point back to, I think, some of the commentary around every large customer looking to optimize the workloads that they have at scale today, and reinvest some of the money they save into new projects.

Satya Nadella: They're up. And so those are the... And now once we cycle through that again, the seats will get added and premium. Like, I'm very, very excited about Teams Pro coming out in a couple of weeks.

Speaker 32: This one is for Amy. Amy, given the obviously tough environment, it sounds like reaching that full fiscal year 20% constant currency Commercial Revs guide would be tough. Is that also true for the soft guidance for 10%-plus total revenue growth for the year? And if I could just sneak in a clarification, Amy, just because it's an important metric. When you talk about a 4- to 5-point decel in Azure, that's off of the 38% reported for December, right, not off the 35% exit rate? This 1 for Amy. Amy, given the obviously tough environment, it sounds like reaching that full fiscal year 20% constant currency Commercial Revs guide would be tough.

Speaker 32: Is that also true for the soft guidance for 10%-plus total revenue growth for the year? And if I could just sneak in a clarification, Amy, just because it's an important metric. When you talk about a 4- to 5-point decel in Azure, that's off of the 38% reported for December, right, not off the 35% exit rate? It's all -- Karl, let me just answer the first half of your question. Give me a second. On the second half of your question, which is the guide to the exit rate, it's off the exit rate on Azure of 4 to 5 points, just to make sure that is clear. In terms of thinking about total year revenue, right, I did not comment on full year revenue as we continue, I think, really just to watch the Windows PC market as it returns to pre-pandemic levels.

Speaker 32: This 1 for Amy. Amy, given the obviously tough environment, it sounds like reaching that full fiscal year 20% constant currency Commercial Revs guide would be tough. Is that also true for the soft guidance for 10%-plus total revenue growth for the year? And if I could just sneak in a clarification, Amy, just because it's an important metric. When you talk about a 4- to 5-point decel in Azure, that's off of the 38% reported for December, right, not off the 35% exit rate? It's all -- Karl, let me just answer the first half of your question. Give me a second.

Speaker 32: On the second half of your question, which is the guide to the exit rate, it's off the exit rate on Azure of 4 to 5 points, just to make sure that is clear. In terms of thinking about total year revenue, right, I did not comment on full year revenue as we continue, I think, really just to watch the Windows PC market as it returns to pre-pandemic levels.

Speaker 32: It's all -- Karl, let me just -- the first half of your question, give me a second. On the second half of your question, which is the guide to the exit rate, it's off the exit rate on Azure of 4 to 5 points, just to make sure that is clear. In terms of thinking about total year revenue, right, I did not comment on full year revenue as we continue, I think, really just to watch the Windows PC market as it returns to pre-pandemic levels.

Amy E. Hood: And those are all the things that we will be able to sort of use to, you know, ensure that the art is also going up in value a bit. And Mark, because I do think it's actually quite hard to separate from a driver perspective, how much is optimization versus macro, you know? It's all related when you start to say what's the best ROI I can get on every budget dollar I spend, and our job as a partner to so many of these customers is to help them do that. So Satya talked a bit about Azure.

Amy E. Hood: Let me talk a little bit about per user where the way it showed itself was that we had very high renewal rates and very good suite performance at renewal, meaning what we tend to call internally recapture. Uh, while we had some more challenges on maybe a standalone sale of a new product, where the cycle's going to be a little longer, right? You're going to have to show that cost savings, but the sweet sale, the value in that. You can see the ARPU growth, and you can see the consistency potentially in both renewal rates and in, frankly, Microsoft 365 performance.

Speaker 32: Hello, do you want me to move?

Speaker 32: Hello, do you want me to use the backup?

Speaker 32: Thank you. Hello. Hello. Do you want me to use the backup?

Hello, do you want me to move?

Speaker 32: Outside of that, as you can see, the trends are relatively consistent. So in some points, it's important because when you look at the operating income margin guidance that I talked about, the fact that we are guiding to really only 1 point of margin deceleration for the year on a constant currency basis with probably over $2 billion of headwind from the OEM business from what we had anticipated heading into the year, the focus on margins, the focus on prioritization, the focus on putting our investments into where we know they have high return, I actually feel quite good about the place that puts us in, as we exit the year in terms of -- and the right energy, right, or leaving the year in Q4 on leverage.

Speaker 32: Outside of that, as you can see, the trends are relatively consistent. So in some points, it's important because if you look at the operating income margin guidance that I talked about, the fact that we are guiding to really only 1 point of margin deceleration for the year on a constant currency basis with probably over $2 billion of headwind from the OEM business from what we had anticipated heading into the year, the focus on margins, the focus on prioritization, the focus on putting our investments into where we know they have high return, I actually feel quite good about the place that puts us in as we exit the year in terms of -- and the right energy, right, or leaving the year in Q4 on leverage.

Hello. Do you want me to use the backup?

Thank you. Hello. Hello. Do you want me to use the back back up?

Speaker 32: Hello.

Speaker 32: Hello?

Speaker 32: Please stand by.

Hello.

Speaker 32: Joe McQueen, stand by, that takes a process. That takes a process. I've got it here. Please continue on phone 2. Our next question comes from Brad Zelnick with Deutsche Bank. Amy, I wanted to ask about the expense actions that you announced last week. Obviously, not a decision that you would take lightly. How are you thinking about headcount for the remainder of the year and the possibility of further expense actions, if necessary? And what criteria do you consider in making these decisions? Our next question comes from Brad Zelnick with Deutsche Bank. I've got it here. Please resume on phone 2.

Hello?

Mark L. Moerdler: Perfect. Thank you very much. I appreciate it.

Please stand by.

Joe McQueen, stand by.

Amy E. Hood: Yeah, thanks, Mark. Joe, next question, please. Our next question comes from the line of Kash Rangan with Goldman Sachs. Please proceed. Thank you very much. Satya, I'm curious if we could talk about how long the cycle time for optimization lasts. Are we talking a couple of quarters, three quarters, or multiple years?

that takes process.

Kash Rangan: Because I do take your comment about tech spending as a percentage of global GDP going higher. So if that were to happen, how do you frame the duration of this optimization that's happening in the industry? Thank you so much. Yeah, I'm in it.

I got it here. Please resume on phone 2.

Speaker 32: Our next question comes from Brad Zelnick with Deutsche Bank. Amy, I wanted to ask about the expense actions that you announced last week. Obviously, not a decision that you would take lightly. How are you thinking about headcount for the remainder of the year and the possibility of further expense actions, if necessary? And what criteria do you consider in making these decisions? Our next question comes from Brad Zelnick with Deutsche Bank.

Satya Nadella: You know, I think that you can own it. You have a workload, you optimize the workload, and you start a new workload. So the thing that I would say is when you're done with optimizing a workload is when you are done with the cycle. So I think if you sort of say, when did we enter this? You know, we accelerated a bunch of workloads during the pandemic over a period of two years. So we are optimizing. I don't think we're going to take two years to optimize it.

Speaker 32: Our next question comes from the line of Brad Zelnick with Deutsche Bank.

Speaker 32: That concludes the Q&A portion of today's earnings call. Thank you for joining us today, and we look forward to speaking with all of you soon.

Speaker 32: Amy, I wanted to ask about the expense actions that you announced last week. Obviously, not a decision that you would take lightly. How are you thinking about headcount for the remainder of the year and the possibility of further expense actions, if necessary? And what criteria do you consider in making these decisions? Amy, I wanted to ask about the expense actions that you announced last week. Obviously, not a decision that you would take lightly. How are you thinking about headcount for the remainder of the year and the possibility of further expense actions, if necessary? And what criteria do you consider in making these decisions?

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

Speaker 32: Ladies and gentlemen, this concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.

Ladies and gentlemen, this concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.

Satya Nadella: But we're going to take this year to optimize. And then, as we optimize, new projects start. The new project starts don't start instantly at their peak usage. They start, and then they scale.

Speaker 32: Brad, listen, thanks for that question. Obviously, as we think about the Q4 guidance around low single-digit operating expense growth, we start to, as you know, sort of lap certain real acceleration points that we had last year. And we lapped the acquisitions of both Nuance and Xandr. So by the time that we get to the end of Q4, you'll see very moderated headcount growth on a year-over-year basis in addition to some of the prioritization decisions we've made. Brad, listen, thanks for that question. Obviously, as we think about the Q4 guidance around low single-digit operating expense growth, we start to, as you know, sort of lap certain real acceleration points that we had last year.

Speaker 32: And we lapped the acquisitions of both Nuance and Xandr. So by the time that we get to the end of Q4, you'll see very moderated headcount growth on a year-over-year basis in addition to some of the prioritization decisions we've made. Brad, listen, thanks for that question. Obviously, as we think about the Q4 guidance around low single-digit operating expense growth, we start to, as you know, sort of lap certain real acceleration points that we had last year. And we lapped the acquisitions of both Nuance and Xandr. So by the time that we get to the end of Q4, you'll see very moderated headcount growth on a year-over-year basis in addition to some of the prioritization decisions we've made.

Speaker 32: Brad, listen, thanks for that question. Obviously, as we think about the Q4 guidance around low single-digit operating expense growth, we start to, as you know, sort of lap certain real acceleration points that we had last year. And we lapped the acquisitions both of Nuance and of Xandr. So by the time that we get to the end of Q4, you'll see very moderated headcount growth on a year-over-year basis in addition to some of the prioritization decisions we've made, calendar. And, with that, we will stop there. Look at your calendar. And, with that, we will stop there. You And you're right.

Satya Nadella: And so those are the two cycles that will happen where there will be a time lag. Got it. So it's a temporary adjustment before we start to get the full effect of the next set of workloads. Good to get that. That's correct. Thank you.

Speaker 32: We take decisions, like the one we had to make to get our cost structure more in line with revenue, incredibly seriously because we have lots of very talented people who were impacted by that. And so I do think that we feel confident in that exit rate. As I said, this will certainly imply that year-over-year growth, as we recoup some of the investments that we've made, will be quite small.

calendar. And, with that, we will stop there. you

Speaker 32: And you're right. We take decisions, like the one we had to make to get our cost structure more in line with revenue, just incredibly seriously because we have lots of very talented people who were impacted by it. And so I do think that we feel confident in that exit rate. As I said, it will certainly imply that year-over-year growth, as we recoup some of the investments that we've made, will be quite small.

Satya Nadella: Thanks, Kash. Joe, next question, please. The next question comes from the line of Karl Keirstead with UBS.

Karl E. Keirstead: Please proceed. Thank you. This one is for Amy.

Speaker 32: And you're right. We take decisions like the one we had to make to get our cost structure more in line with revenue incredibly seriously because we have lots of very talented people who were impacted by that. And so I do think that we feel confident in that exit rate. As I said, it will certainly imply that year-over-year growth as we recoup some of the investments that we've made will be quite small. And you're right. We take decisions, like the one we had to make to get our cost structure more in line with revenue, just incredibly seriously because we have lots of very talented people who were impacted by it.

Speaker 32: And so I do think that we feel confident in that exit rate. As I said, it will certainly imply that year-over-year growth, as we recoup some of the investments that we've made, will be quite small.

Amy E. Hood: Amy, given the obviously tough environment, it sounds like reaching that full fiscal year 20% constant currency commercial revenue growth guide would be tough. Is that also true for the soft guidance for 10% plus total revenue growth for the year? And if I could just sneak in a clarification, Amy, just because it's an important metric. When you talk about a four to five point decel in Azure, that's off of the 38% reported for December, right? Not off the 35 exit rate.

Speaker 32: Our next question comes from Brad Reback with Stifel. On Office 365 Commercial, with you guys approaching 400 million seats and the E5 business really starting to accelerate here on that consolidated sort of expense ROI that you're putting forth, should we think about the growth there more evenly balanced between seats and ARPU going forward or still continue to favor seats? Our next question comes from Brad Reback with Stifel. On Office 365 Commercial, with you guys approaching 400 million seats and the E5 business really starting to accelerate here on that consolidated sort of expense ROI that you're putting forth, should we think about the growth there more evenly balanced between seats and ARPU going forward or still continue to favor seats?

Speaker 32: Our next question comes from the line of Brad Reback with Stifel. Our next question comes from the line of Brad Reback with Stifel. On Office 365 Commercial, with you guys approaching 400 million seats and the E5 business really starting to accelerate here on that consolidated sort of expense ROI that you're putting forth, should we think about the growth there more evenly balanced between seats and ARPU going forward or still continue to favor seats? On Office 365 Commercial, with you guys approaching 400 million seats and the E5 business really starting to accelerate here on that consolidated sort of expense ROI that you're putting forth, should we think about the growth there more evenly balanced between seats and ARPU going forward or still continue to favor seats?

Speaker 32: Yes. That's a good question, especially because this quarter, you started to see a little bit more of that ARPU influence. And as you might have gathered from your question, and I'll just reinforce it, as we see some of this moderating seat growth, whether that's some of the new SKU weakness that we had talked about, some of the stand-alone stuff, you're starting to also see E5 ARPU happen at the same time. So it does create some stability in that Office 365 Commercial revenue number. So we're still seeing good seat growth, still growth across all workloads.

Amy E. Hood: Thank you. Thank you. It's all, Karl, just let me just.

Amy E. Hood: The first half of your question, give me a second on the second half of your question, which is the guide to the exit rate, it's off the exit rate on Azure of four to five points, just to make sure that is clear. In terms of thinking about total year revenue, you know, you're right; I did not comment on full year revenue as we continue, I think, really just to watch the WITO PC market as it returns to pre-pandemic levels. Outside of that, as you can see, the trends are relatively consistent.

Speaker 32: Our next question comes from Brad Reback with Stifel. On Office 365 Commercial, with you guys approaching 400 million seats and the E5 business really starting to accelerate here on that consolidated sort of expense ROI that you're putting forth, should we think about the growth there more evenly balanced between seats and ARPU going forward or still continue to favor seats? On Office 365 Commercial, with you guys approaching 400 million seats and the E5 business really starting to accelerate here on that consolidated sort of expense ROI that you're putting forth, should we think about the growth there more evenly balanced between seats and ARPU going forward or still continue to favor seats?

Speaker 32: On Office 365 Commercial, with you guys approaching 400 million seats and the E5 business really starting to accelerate here on that consolidated sort of expense ROI that you're putting forth, should we think about the growth there more evenly balanced between seats and ARPU going forward or still continue to favor seats? On Office 365 Commercial, with you guys approaching 400 million seats and the E5 business really starting to accelerate here on that consolidated sort of expense ROI that you're putting forth, should we think about the growth there more evenly balanced between seats and ARPU going forward or still continue to favor seats?

Amy E. Hood: So, in some ways, it's important because when you look at the operating income margin guidance that I talked about, the fact that we're guiding to really only one point of margin deceleration for the year on a constant currency basis, with probably over two billion dollars of headwind from the OEM business from what we had anticipated heading into the year. The focus on margins, the focus on prioritization, the focus on putting our investments into where we know they have a high return, I actually feel quite good about the place that puts us in as we exit the year in terms of and the right energy right where we're leaving the year in Q4 on leverage. I got it.

Speaker 32: That's a good question, especially because this quarter, you started to see a little bit more of that ARPU influence. And as you might have gathered from your question, and I'll just reinforce it, as we see some of this moderating seat growth, whether that's some of the new SKU weakness that we had talked about, some of the stand-alone stuff, you're starting to also see E5 ARPU happen at the same So it does create some stability in that Office 365 Commercial revenue number. So we're still seeing good seat growth, and still growth across all workloads. And as you're pointing out, we're getting further into E5 health, where we've seen, I want to say, 4 or 5 really good quarters of E5 adoption.

Speaker 32: The value there is just very high for customers in this environment between analytics, and security. And I think we've given some, I think, good security data points in terms of adoption and voice. This is a place where customers can save money by moving to this suite. And I do think you're starting to see some of that ARPU help.

Speaker 32: And as you're pointing out, we're getting further into the E5 health, where we've seen, I want to say, 4 or 5 really good quarters of E5 adoption. The value there is just very high for customers in this environment between analytics, and security, and I think we've given some, I think, good security data points in terms of adoption and voice. This is a place where customers can save money by moving to this suite. And I do think you're starting to see some of that ARPU help. And as you're pointing out, we're getting further into E5 health, where we've seen, I want to say, 4 or 5 really good quarters of E5 adoption.

Speaker 32: Thanks for watching!

Thanks for watching!

Karl E. Keirstead: Super helpful. Thanks, Amy. Thanks, Karl. Joe, next question, please. Our next question comes from the line of Brad Zelnick with Deutsche Bank. Please proceed. Great. Thanks very much. Amy. Amy, I wanted to ask about the expense actions that you announced last week. Obviously, not a decision that you would take lightly.

Brad Zelnick: How are you thinking about headcount for the remainder of the year and the possibility of further expense actions if necessary? And what criteria do you consider in making these decisions? Thanks. Brad, listen, thanks for that question. You know, obviously, as we think about the Q4 guidance around low single-digit operating expense growth, we start to, as you know, sort of lap certain real acceleration points that we had last year, and we've already lapped the acquisitions, both of Nuance and of Zander. So, by the time that we get to the end of Q4, you'll see very moderated headcount growth on a year-over-year basis, in addition to And you're right.

Amy E. Hood: We take decisions like the one we had to make to get our cost structure more in line with revenue incredibly seriously because we have lots of very talented people who were impacted by that. And so I do think that we feel confident in that exit rate. As I said, it'll certainly imply that year-over-year growth as we recoup some of the investment that we've made will be quite small. Thanks for the color.

Brad Zelnick: Thanks, Brad. Joe, next question, please. Our next question comes from the line of Brad Reback with Stiefel.

Brad Reback: Please proceed. Great. Thanks very much.

Amy E. Hood: On Office 365 commercial, with you guys approaching 400 million seats and the E5 business really starting to accelerate here on that consolidated sort of expense ROI that you're putting forth, should we think about the growth there more evenly balanced between seats and ARPU going forward or still continue to favor seats? That's a good question, especially because this quarter you started to see a little bit more of that ARPU influence. You might have gathered from your question and I'll just reinforce it, you know, as we see some of these moderating seat growth, um, whether that's some of the new uh skew weakness that we had talked about some of the standalone stuff you're starting to also see e5 r2 happen at So we're seeing, you know, still good seat growth, still growth across all workloads.

Satya Nadella: And, you know, as you're pointing out, we're getting further into the E5 health, where we've seen, I want to say, four or five really good quarters of E5 adoption. The value there is just very high for customers in this environment, between analytics and security. And I think, you know, we've given some, I think, good security data points in terms of adoption and voice. This is a place where customers can save money by moving to this suite. And I do think you're starting to see some of that ARPU help.

Amy E. Hood: And we're also investing outside of Microsoft 365 in other per-user workloads, Viva being a new suite, Power Platform on its own, and even standalone offers like Teams Pro and what have you. So there's a significant amount of work we want to do besides sort of the suites that we all sort of have at scale. Thank you very much.

Brad Reback: Joe, we have time for one last question. Our next question comes from the line of Tyler Radke with Citi. Please proceed. Thanks for taking the time to answer the question. I wanted to ask just about how your visibility has changed in terms of some of the larger Azure customer ramps. Could you just comment on the extent of those large customer ramps or if any of those projects are getting put on pause? And then, is there any way to just kind of quantify the potential AI contribution or maybe GPU-powered contribution to Azure that you're expecting over the coming quarters? Thank you. On the second piece, I think it's... too early to sort of start somehow separating out AI from the rest of the workload.

Brad Reback: I mean, even the workloads themselves, AI is just going to be a core part of a workload in Azure versus just AI alone. So in other words, if you have an application that's using a bunch of inference, let's say, it's also going to have a bunch of storage, and it's going to have a bunch of other compute beyond GPU inferencing, if you will. So I think over time, obviously, I think every app is going to be an AI app.

Satya Nadella: That's, I think, the best way to think about this transformation, in your characterization of... The large customers, whether there are any, you know, any changes in their trajectory, I would say, I would point back to, I think, some of the commentary around every large customer is looking to optimize the workloads that they have at scale today and plow some of that money back that they save into new project structures. So that's sort of what the classic pattern of large customers is. Sometimes you have ISVs who are different, right?

Satya Nadella: So if an ISV is optimizing, they optimize and say, what is the... Hello, do you want me to move? Hello. Hello, do you want me to use the back backup? Hello. Ladies and gentlemen, please stand by. Duff and stuff.

Operator: Please resume on the phone, too. That wraps up the Q&A portion of today's earnings call. Thank you for joining us today, and we look forward to speaking with all of you soon. Ladies and gentlemen, this concludes today's conference. You may disconnect your lines at this time. Thank you for your participation. Thank you for watching!

Q2 2023 Microsoft Corp Earnings Call

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