Microsoft Cloud Strength and Hardware Progress Drive Record First-Quarter Revenue

Strong performance across commercial and consumer segments delivers revenue of $23.20 billion.

Microsoft Corp. today announced revenue of $23.20 billion for the quarter ended September 30, 2014. Gross margin, operating income and diluted earnings per share ("EPS") for the quarter were $14.93 billion, $5.84 billion and $0.54 per share, respectively.

These financial results include $1.14 billion of integration and restructuring expenses, or an $0.11 per share negative impact, related to both Microsoft's restructuring plan announced in July 2014 and the ongoing integration of the Nokia Devices and Services ("NDS") business.

The following table notes the impact of the integration and restructuring expenses on the company's financial performance ("Noted Items"). This financial information is provided to aid investors in better understanding the company's performance. All growth comparisons relate to the corresponding period in the last fiscal year.

"We are innovating faster, engaging more deeply across the industry, and putting our customers at the center of everything we do, all of which positions Microsoft for future growth," said Satya Nadella, chief executive officer of Microsoft. "Our teams are delivering on our core focus of reinventing productivity and creating platforms that empower every individual and organization."

"We delivered a strong start to the year, with continued cloud momentum and meaningful progress across our device businesses," said Amy Hood, executive vice president and chief financial officer of Microsoft. "We will continue to invest in high-growth opportunities and drive efficiencies across the organization to deliver long-term shareholder value."

Devices and Consumer revenue grew 47% to $10.96 billion, with the following business highlights:

· Office 365 Home and Personal subscribers totaled more than 7 million, representing more than 25% sequential growth over the previous quarter.
· Surface Pro 3 momentum drove Surface revenue of $908 million.
· New Windows consumer licensing programs drove positive unit growth while OEM non-Pro revenue declined 1%.
· Total Xbox console sales were 2.4 million, growing 102%, and Xbox One launched in 28 new markets.
· Phone hardware revenue exceeded $2.6 billion with ongoing focus on execution discipline.

Commercial revenue grew 10% to $12.28 billion, with the following business highlights:

· Server products and services revenue increased 13%, with double-digit growth for SQL Server, System Center and Windows Server.
· Office Commercial products and services revenue grew 5% as customers transition to Office 365.
· Commercial cloud revenue grew 128% driven by Office 365, Azure and Dynamics CRM.
· Lync, SharePoint and Exchange, our productivity server offerings, collectively grew double-digits.
· Windows volume licensing revenue increased 10%.

"Customers are embracing our latest technologies from Surface Pro 3 and Office 365 to Azure and SQL Server," said Kevin Turner, chief operating officer of Microsoft. "Through great execution by our sales teams and our partners, we have been able to deliver our truly differentiated value to the marketplace."

www.microsoft.com

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