Earnings call transcript Q2 2023

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Operator

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.

Brett Iversen

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.

during Relations financial can is between summary supplement prepared Investor press our intended GAAP Microsoft provides our and and measures. release slide remarks and the non-GAAP website, of find you earnings to the financial On reconciliation call differences today’s deck, which

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

in assessing performed, as provide same available rate constant in are growth when will the effect the constant Where excluding our We how rate growth of foreign rates we the refer rates growth also to fluctuations. currency only. will currency for underlying currency, framework a businesses

the our Today’s and post remarks will prepared call is immediately call recorded. transcript to our the following until is We being live complete available. website webcast

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And call Satya. I the with will turn that, to over

Satya Nadella

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

with partners, I are increasingly As and few a customers clear. things meet

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

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

will innovation I our Now, examples highlight Azure. with starting of

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

time provisioning migrating by able example, AIA reduced insurer to from an multiple just to to months save more XX% an than Azure was IT As hour. and

continue the now We PayPal. ago, customers, a have also than more including with year hybrid XX,XXX double to Arc and Arc. Northern We number Trust Azure with companies computing lead like Citrix,

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

to on Microsoft us AI. upon age is The and it. AI of Now is powering

as in are we We AI. in are are as their And cloud as leader positioned opportunity witnessing capture making a providers non-linear improvements in platforms. foundation and to we well models, select available which invest workloads, customers capability of that new

have the to infrastructure like state-of-the-art being customers supercomputing the used partners It’s powerful services, in cloud. and train and We AI by most including models OpenAI ChatGPT.

using OpenAI made last broadly Azure it. available Al over Just to KPMG from our we are service week, XXX already Jazeera customers and

use We agreement enabling in their the to the first we for OpenAI. And next the with ChatGPT, for of it will phase applications support our add customers of time. announced soon yesterday, own completion

pleased across will the our cloud in their to enterprise and be to deploy exclusive are consumer models state-of-the-art products continue as push their We provider we AI. we and

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

applications productivity. developers GitHub and today. million X Modernizing Studio developers. And of any to GitHub, built era, million this used product is we to most with is mission-critical developer for to now home have have More AI Copilot company’s Copilot to-date. Visual people transforming fundamentally XXX is portfolio PaaS than operations the services, the comprehensive Azure help. on at-scale and Now GitHub tools first to

and Duolingo, adoption This early carryout including and seen have companies, we quarter, we businesses Volkswagen interest software strong brought to from Copilot Lemonade and group.

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

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

XX% from to AT&T Rabobank, into than are to Power AI-powered anyone streamline workflows. complex up new automation. features prompts we We turn has customers robotic making leading over introducing year-over-year. in are for language natural Automate process easier tasks, it repetitive to And XX,XXX more

applications. on is Now business businesses as and Dynamics taking supply functions. share finance, to experience XXX service, customer we their help chain digitize

with is operations. digital & Kraft introduced center Baylor to disruptions. contact example, Pepsi-Cola moving its helping AI reactive service. Supply predict White intelligence. deals we field Chain And Scott quarter, FUJIFILM in conversational optimizing Texas Bottlers For is new this and mitigate G&J to apply our predictive from Investec our using faster closing to is customers Platform, patient enhance iFit and Heinz communications. like is

Industry to on Now Solutions.

tech entire Our industry clouds are and pull-through for driving cross-industry our stack.

was stores. help has digitize front operations largest week of of Polish NRF retail new Zabka their for last cloud chain retailers we and at stores our retailer introduced and as tools physical with to center built Our their technology. day-to-day manage autonomous help the the Europe in

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as new for well our evolving with organization every Microsoft that of Viva are XXX established systems to applications to their amplify both the work. work. essential Teams is individual AI-first creativity an as enables of and XXX, world Stream and to and platform new on every into like adapt Designer, Now Microsoft rapidly Loop. to applications productivity

consumer subscribers, million bringing introduced XX% more Microsoft We offerings up and we more people. XX have our XXX premium than Basic, year-over-year to

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

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X more PSTN enterprise demand recaps. over added AI-powered XX With have Teams like million than and last alone. are seats we We end-to-end features encryption months for the meeting Premium, advanced

next we make will have interest available broadly it in We month. preview strong and seen

and environment, aligning digital communications into for Microsoft With streamline and is Goals indispensable daily key organizational experience Viva category for Viva business the objectives directly flow market to XX,XXX super U.S. to the its tool organization created using Sales new centralize a for an and is our have XXX experience brings Carlsberg process. turned today’s Viva to Viva and sellers. become In productivity. employees. important Microsoft most employee entire Viva is employee employee work Bank work. the of in Viva, for results the app we has also critical.

advanced choosing well organizations offerings are Rio across seen our XXX. security, NTT customers of applications. EY, increasingly generally state available as our the since continue We quarter. interest the XX% Communications, this to private including strong voice have EX government as making of and XXX on sector, All it And use consolidate compliance, Microsoft or Tinto enterprise and for more Microsoft X analytics. public organizations see up, IKEA, Virginia premium we

Windows. to on Now

its pre-pandemic declined for returning to Monthly and to value also Windows And because continues this of active customers, than proposition. security higher usage the per XX nearly intensity all-time quarter. differentiated PCs with reached to up an the XX%. continues during shipped number PC Windows productivity be time spent of high adoption of quarter, grow levels, While commercial pre-pandemic devices

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

Now on security. to

across billion we months, platforms. digital XX our revenue surpassed past customers business and in the endpoint security help Over their protect as $XX estate clouds

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

consolidated XX And because and Directory. just University example, SIM the four or we with on security our of vendors reduce organizations for Group, moved stack We all to are switched more Sentinel Fraser over workloads categories access Roku Azure number management Toronto and our and Microsoft across retailer security of consolidating XX% The to with Customers cost. order in all cloud XDR year-over-year. integrated identity major and risk, increased complexity Astellas to are UK capabilities. Ferrovial Pharma, serve. taking Active from to share Microsoft. of

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

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

quarter. share Microsoft over feed Bing daily year-over-year. our the gain the States increased and in Start gained Edge for browser, United share consecutive content XX% personalized seventh users of to Our continues

Hudson’s the platform a are launch Australian We like largest Bay that new as chose are Canada’s and omnichannel empowering broadcasters media well market. Endeavor, TV for media the to now building retailers in Xandr PromoteIQ, we With third-party Global, complete and retailer, companies buying inventory. platform our a expanding Brazilian as

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

continue to add invest Game value Pass. We to to

our subscribers. be This at And exciting premium ZeniMax to game upcoming quarter, with Game we energized lineup PC and to launches, and tomorrow. Games make games, Studios in company’s sharing finally, titles partnered details Xbox and are we Riot of will the by including available we along content showcase our mobile new from with AAA Gameplay

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

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

With that, I will hand Amy. it to over

Amy Hood

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

and X% adjusted increased currency. currency, constant increased increased Our decreased X% $XX.X X% X% second per and was gross X% was currency, constant income which in revenue constant decreased currency. X% the in When and billion, earnings constant in $X.XX, quarter X% dollars margin in and share X% up and for charge, operating

In our growth in business, strong expectations, declined more Solutions. Advertising but PC spend LinkedIn line market advertising business, and expected, our expectations. In in and we our challenges was delivered with the than slightly impacted Surface Marketing our search news with commercial our impacted line consumer business. execution which

Satya, XXX However, saw EMS saw Windows sold are lower-than-expected customers We growth standalone the as that in heard we seeing weaken December. products are XXX, Microsoft this growth we and and across the Office through consumption in Azure in caution commercial exercise from you business new moderated outside suite. environment and results

strong the saw regions around in world. we many perspective, geographic a From execution

weaker than was in expected. the U.S. performance However,

rates see in Dynamics, to Commercial growth high recapture and our commitments lower renewal business Edge. offset in year slowdown growth in areas X% than Consistent earlier. the on were bookings Security standalone increased comparable execution strong constant AI, continued data Azure a X% as share and we Importantly, noted gains and new sales including of and by across in such motions, expected. Teams, currency, partially prior

portion, XX% Roughly be Commercial remaining recognized next currency next constant in XX%. remaining XX performance months, the obligation up billion. in will year-over-year. to which $XXX the revenue XX% be to beyond will in increased increased months, XX% XX The XX% recognized

line level, mix decreased X expectations. Intelligent line in Our Productivity FX expectations. by favorable X and year-over-year X company impact points, XX%. with points revenue segment Computing to were Processes total growth At decreased points, by annuity to on More and Cloud FX FX revenue with point expectations. increased in Business a X Personal both

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

gross and was ahead Microsoft Microsoft constant Cloud currency, revenue $XX.X in point billion by roughly Cloud to grew XX% and expectations. driven than energy expected, X year-over-year lower XX% percentage better a increased costs. margin points of XX%,

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

XX%. was percentage margin gross Company

the expense mix Excluding roughly cloud. the Operating impact Windows investments of Operating in a to was currency, adjusted expected. mix expense decreased XX% and engineering, by growth acquisition accounting in shift of in from charge QX Nuance when driven the revenue the gross constant driven lower margin change estimate, million OEM $XXX lower LinkedIn. about and and by than sales percentage for increased cloud points, licensing XX% X

operating QX total Xandr At headcount closed and last Year-over-year ended level, was roughly year X and ago. Adjusted than acquisitions, X%. XX% year-over-year charge, the a respectively. from a higher margins points Sequential less roughly to the December Nuance X than which points headcount for growth company included growth XX%. QX, decreased

accounting driven FX points, impact change lower well primarily revenue. as a operating the OEM by of roughly unfavorable the Excluding impact margins declined estimate, of in mix as X

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

business. partially weakness advertising by by Office and with earlier. Consumer X% noted transactional which Solutions offset in Marketing in Microsoft our currency, continued increased LinkedIn XX% XXX in revenue from declined Talent revenue constant increased currency, XX.X in the declines driven X% Solutions, million, momentum partially XX% constant to offset in trends and growth XX% in subscriptions, grew by

XX% in Dynamics grew in currency. XX% and XXX, which XX% constant revenue dollars X X% gross by and increased and percentage XX% and year-over-year. driven roughly gross constant currency, margin XX% constant margin in Dynamics currency, Segment grew increased point

the percentage impact of estimate, gross the mix offerings. Excluding cloud decreased by driven to in sales shift slightly, change margin accounting

X constant XX% including Operating X of impact X increased constant increased of the favorable estimate in impact as points the the change accounting from currency from and offset were XX% QX points earlier. income expense QX XX% in in and roughly to points charge due noted Operating currency, by charge. unfavorable the X%

Intelligent XX% currency. and XX% segment. server billion, and constant in grew increasing in constant products services services XX% XX% $XX.X cloud Revenue in currency. Overall, Cloud XX% and and other increased line currency, in was revenue and Next, Azure with the cloud constant expectations. XX% revenue

in growth constant currency noted the quarter in growth December, the to Azure particularly mid-XXs. with continued earlier, moderate, exited As and we

of licensing. grew gross impact in with demand revenue from revenue slightly. increased In server over business, installed earlier. Services on-premises business, In weakness the in hybrid million Enterprise and grew and continued constant slowdown dollars base percentage and user noted decreased business the Security by Mobility our X% growth decreased in transactional in seats margin new our with currency, Segment XXX per gross to and X% XX% constant and offset XX% Enterprise currency. constant in X% margin currency, X% XX% increased

X driven higher in the estimate, impact by to the margin roughly gross points, Excluding costs. mix accounting of and percentage declined energy change sales shift Azure

Operating accounting of of Operating unfavorable XX of noted impact currency, of charge. the in charge impact acquisition. Nuance grew XX% roughly X XX% roughly from constant approximately roughly as XX% QX X the points points expenses X the and earlier from including impact in impact X% of by income from and QX in and points currency constant was favorable change the offset points estimate increased

Now $XX.X to More Surface, Personal in Windows with XX% year-over-year, XX% Windows OEM billion, line Revenue decreasing was by and search. currency, Commercial Computing. below and XX% expectations revenue decreased constant expectations. in driven

impact last decreased Devices new due year, product XX% strong comparable. the the a prior execution in year from to on on XX Windows XX% currency, deferral launches. XX% declined below revenue constant Excluding expectations challenges to revenue

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Our Edge than points roughly contributed more The this X acquisition benefit. quarter. share expected Xandr browser gained of

lower-margin X% shift and points device and Operating XX% first-party and constant earlier constant from margin roughly year. Xandr strong in impact impact X currency, currency, points roughly from and including noted and and mix Segment currency, margin XX% acquisition. Operating declined services the last and content points revenue expenses XX% sales the Xbox noted content earlier. charge X XX% hardware with X% gross year-over-year, XX% And XX% X% in of line X in revenue by decreased in margin QX and QX gross from in dollars points of constant impact declined charge including of revenue percentage declined X% in XX% in lower declined constant to and income decreased the Xbox currency. given increased constant gaming, currency, in roughly X% businesses. X and driven the expectations. unfavorable currency, constant gross

cloud offset employee expenditures, Capital billion. down results. cloud down the company $X.X to provision year-over-year. operations XX% and a $X.X demand. $X.X leases, paid cash collections payment were higher as finance total Free related as including year-over-year by was capitalization was from billion to and back supplier strong tax were than billings to R&D PP&E Cash of payments. for billion, as well flow Cash support $XX.X Now flow billion, more TCJA XX% was

free the of XX%. impact from cash declined payment, flow and this Excluding cash tax operations flow X% declined

was driven loss and quarter, purchase negative This lower share forward a mark-to-market anticipated, other agreement. than on $XX by million, a income expense

was billion tax $X.X And repurchases effective we shareholders approximately rate XX%. to Our dividends. through returned share finally, and

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

growth First, current approximately revenue COGS on decrease FX X expense and by X total by rates, FX. now operating by growth Based expect X points. growth we point to points,

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

QX. we of business, into business that Commercial to our the In December trends end continue at expect we saw

we in and declining in are year. opportunity given over flat growth with a large in we cautious expiry be customers markets. global expect terms more While spend, also our growth base relatively our position Azure the prior commercial have In the contracts, to improve year their strong execution, comparable to of strong bookings,

inclusion X be the the execution by noted core motions and platform slowdown and and from offset year. continued new impact consistent will from Nuance of to our prior the sales of impact our across earlier expect We commitments of points in business unfavorable

point year-over-year, estimate accounting driven roughly percentage noted margin gross earlier. Cloud change by should X be up the Microsoft

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Our data longer-term opportunities. AI be on continue demand, near-term center customer based a investments to and including

guidance. $XX.X $XX.X Processes, constant currency EX. Business In in revenue to through Commercial, Productivity or Office XX% growth ARPU by segment expect across billion will In segments and XXX again Next, driven billion. customer grow XX% to Office seat we between revenue with growth and growth and be

growth by expect basis. to XXX We X to Office roughly be sequentially on-premises revenue currency decline lower in our point the on expect a we revenue In constant business, mid-XXs.

in expect digits, single In XXX Consumer, we subscriptions. driven Office revenue low growth the by Microsoft

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

to in by And Dynamics be which over of revenue. mid-teens, is XX% the total in revenue Dynamics, expect in now low growth Dynamics we driven to continued growth XXX,

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

business, is in expect by in at decline digits, impact. currency. growth with And digits decelerate impact driven level. roughly QX noted the Enterprise that, X mid-single on-premises expect in FX to we In As be Microsoft points Services, to our Azure by from FX Services. as I about X than more X we Azure segment exited in revenue our to to constant offset mid-XXs should growth decline constant currency. demand hybrid single revenue low server Consulting the we earlier, unfavorable point than solutions low more QX for in And will

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should noted levels. Windows similar to decline services PC pre-pandemic execution mid-XXs products QX work should and and earlier. revenues prior units new Commercial flat be We business the customer In expect In solutions by offset partially our through XXX advanced strong be comparable, cloud as challenges a on in as the to the in we security devices, for earlier. relatively year Microsoft revenue noted will demand slowdown be

and volume gains and the Search digits, ex-TAC continued we year in advertising points comparable digits. increased advertising strength X revenue, a search high expect than roughly console Edge from on high news and single supported share to in benefited revenue of decline And by by inclusion supply, prior news overall the gaming, driven single faster browser should that grow Xandr.

and and content low Game decline Xbox offset expect will lower hour We to than subscriptions be first-party Xbox services content. as monetization growth Pass per revenue in in the single third-party by and digits more

Now back to company guidance.

expected expense and interest be or $XX.X to billion $XXX We as interest constant billion. and $XX.XX be billion offset roughly X% to and $XX.X expect XX% between COGS XX% be billion currency expense income between to million to operating grow or and should grow expense. to than between and currency X% more is constant $XX.XX Other in at income

and on increase required quarterly volatility. our can losses As recognize gains mark-to-market a which portfolio, equity to reminder, we are

effective as We R&D finally, of a related TCJA be cash billion tax for our reminder, rate flow, QX and XX%. to expect the payment And make XX% provision. we capitalization to QX between a expect cash tax to $X.X

the full and HX on thoughts year. some Now

in on business, revenue basis constant HX. in a currency our Commercial First, grew XX%

However, how exited we given deceleration now HX, a see we expect in December. to

$XXX to full million the to costs previous our now estimate be compared million. expected year for are Next, energy of $XXX higher

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

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

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

business Commercial over and Microsoft our half first year, of XX% the In revenue over that XX% of of our from Cloud. from the came

resilient foundation future. durable by the ourselves are we Microsoft in for have where manage confident team to We I’m position of share. continuing the growth ability markets a the near-term our gaining and to

that, Q&A. With Brett? to go let’s

Brett Iversen

Thanks, Amy.

We will repeat now your you move can please [Operator over to Instructions] Q&A. the Joe, instructions?

Operator

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

Keith Weiss

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

Satya Nadella

much, so Thank Keith, the you for question.

ago. partnership the started we on lot And actually this X.X years. very last of years, of you we’ve a now working partnership as the So years hard in been elements X OpenAI X over know,

be big the going I is as the think I and is to fundamentally next we our AI investors see this believe wave, so to be that And platform strong. said, way for

and value create those to also created by stack the lot enterprise being these tech believe catch just opportunities. new waves waves and gets a of solutions have able our then impact also new and part every We of

we have it. about make it wave How we how come at So essentially that what be ride more and the platform we shift platform then that’s today whenever and opportunities, expansive we and for think new everything can can opportunities created.

inside AI So, infrastructure take will, years, how the goes inference. of both training-heavy cloud if under you the come been network it some once nature working your together. fundamentally and from computing training to you build very course, core what or you of X.X years, now, we its the X is have the lens, the inference that compute Azure in and That’s, applications, for hard radar, to of use changes because storage very, sense, just in being and last considered if supercomputers

of, core transformed core the it’s infrastructure transformed. sort is Azure think being that’s itself So, for being I business,

think data OpenAI us do. Platform Synapse with OpenAI incorporated about plus already We services have can beyond you APIs so can even, Azure what And see in Power capability.

fact, could You we the you one robotic we today some Copilot automation are there at-scale in because based why in would the the have leaders at that out mean the say, of is process automation the of AI product workflow is prompt in today. both, I capabilities LLM in most there. GitHub and reasons of marketplace

stack, And it’s so, fully services. of we expect productivity, in incorporate consumer whether every sort AI the to layer whether in of in us it’s our

also I it. that zone excited are think right. we innovation, so And But excited we about OpenAI are about

So, commercialize they their products.

on are and GPT traction being the We having Chat excited it built about the has. Azure

something But partnership. there investment innovation be every fundamentally, by a to Microsoft So, differentiation solutions we is going is going drive, it’s there in the it AI. of that’s leading one look and and in to competitive think commercial both, to part I an to

Keith Weiss

Outstanding. Thank you.

Brett Iversen

Thanks Steve. Joe, next please. question

Operator

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

Brent Thill

macro us were Thanks. comment view? U.S. made can you think give could seeing just There you state a of what environment. are am overall that and I many had spend you some throughout I your on follow-up just from curious the environment if concerned, about you there the Satya, the comments year. spending

seeming you were a us Thank with you away Can that? little getting that on better. many came you. worse, color I not saying think give just more that are you it’s

Satya Nadella

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

the inflation-adjusted times it how So, many the question overall is growth. given economic is

that’s So, at I it. look how kind of

They which customers they in given they sure on are we macroeconomic even market. thing the the most during bit getting out making that that see, also outlook, that headwinds are the things what or is two the more optimizing last there it’s the a pandemic. it think and we value I it of even on out and that, the quarter, being cautious in then are Given is that commented the doing in accelerated

the those some two point optimizations things, at will given point, is the So, end.

save workload is optimization money the into any cloud their those will And start that they workloads. ramping what up. fact, in workloads of In any

for we gaining that we is are are propositions, customers our are And and so well build of in space sure even positioned loyalty long-term, share value to share gains. Brent, so key that watching the through so with we one this for, things make our

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

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

Brent Thill

Thank you.

Brett Iversen

please. Thanks next Brent. Joe, question

Operator

from Bernstein. of next question proceed. Our comes Moerdler line Please Mark with the

Mark Moerdler

I like know I saw would relating Thank slowing we much. very on optimization. you this quarter. this some question to little a follow-up to bit

Cloud what and are of point stepping slowing at this specifically much do truly people is how is factors guiding and you to quarter optimizing that much is of to How macro before some themselves in – believe Azure. due impacting next that bought versus You demand? they that that have already

Satya Nadella

And feel they has the the is there on product have is, what’s at workloads Amy, that add. here that would say with that your guidance things, One ourselves the driving essentially starts scale real to one it consumption to then things absolutely please you free I visibility just in we say, because and are two of billing. meters. the could optimize do is,

starts. those think things get we And where perfectly They a should when two along are they reprioritization, is more less And and are workloads help, and they things with optimization some savings they workload one are and sort the what customers start how do of how And thing, to project the is savings then get but the back happening when project. the fundamental don’t so that we think they of going place to. I that’s the say that’s the new really, of what sort the I take is that’s on first so, next is simultaneously. be – there new then we can and about the that match, go to some piece, And looking start.

substantial is user optimization it I And also, least the those they are knowledge side the real getting of that, And usage gave Teams the there the when was start happen used And things is our all fact, is pretty side, where in some consumption XXX I whether where numbers, to a have up. user think you per ramp. it’s again, one they’re on going per time Teams workers numbers the what slightly all the when comes to of seeing. what, cycle I for a usage user licenses, and Office that’s in per up. way. projects cloud making at the little on of look think workers. after purchases the cycle will are year-over-year or are and sure Like it they that has the in frontline then to are the what at now different, Like you the guess pandemic, what which bit projects finishes, is was up So, we all that’s acceleration of usage,

ARPUs through cycle in once of seats so Pro like to a the very, excited now get And And I people all will are bit sort are ensure value. to going am good news. Teams the those And are that we again, and be very weeks. use that the those things that also able out of added a the couple up will coming about premium,

Amy Hood

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

So, has talked bit a Satya Azure. about

meaning suite per Let at showed me talk recapture. call renewal, is internally high to a very very the little where bit we way about what itself renewal tend good it the rates performance and user we had

where product the cost suite show going we have in a little in more the of maybe that challenges are is be new to right, and sale, to terms itself longer, savings. While sale that a But value had strong you some a EX. the of standalone on cycle to going showed

consistency both and and in ARPU see see XXX can Microsoft rate the potentially growth in, you frankly, the the You performance. can renewal

Mark Moerdler

Perfect. Thank very much. you

Brett Iversen

Thanks Yes. next Mark. question Joe, please.

Operator

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

Kash Rangan

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

Satya Nadella

you a a can start you workload, have that new the you think workload. – you I and mean I workload optimize

that thing when is is say with a optimizing done the done I the So, workload with would you are are when cycle. you

this, think I when X did say, the if over of enter you period during existing So, accelerated we pandemic years. of sort [ph] a we workloads

at optimize. optimize to this and we year then are and take going take start we They starts And new their as to So, to we scale. to are start then don’t but start usage. years optimize, the projects optimizing. peak the think are project I new X they going instantly don’t we

time be there will happen the are those cycles two so that lag. a And will where

Kash Rangan

it. Got

So, get Good we of set workloads. the of the to adjustment before full it’s a temporary that. to start next get effect

Satya Nadella

correct. That’s

Kash Rangan

Thank you.

Brett Iversen

Thanks please. Kash. question Joe, next

Operator

The line next with Karl from Keirstead question of the proceed. comes UBS. Please

Karl Keirstead

important that fiscal true Thank Amy, you. commercial also guide would total year? sounds a for it of because it’s obviously environment, a that be And in one Thank decel the X-point year Azure, for could for you. you This off for to rate? XX% right, tough. revenue about in XX% just for guidance given reaching Is Amy, XX%-plus the the full clarification, December, constant an not growth exit tough XX% currency like sneak Amy. X-point the talk When metric. soft that’s revs if just the I reported off

Amy Hood

It’s of all half your first me – Karl, let – me the just second. give a question,

– it’s which question, guide just clear. rate the exit the sure is is of that on make your of half four second the exit to Azure rate to of On points, the off five points

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

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

Karl Keirstead

Thanks it. Amy. helpful. Super Got

Brett Iversen

next Joe, please. Karl. Thanks question

Operator

the comes Deutsche Zelnick Bank. question Our with Please line proceed. from Brad next of

Brad Zelnick

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

Amy Hood

Nuance for thanks digit real had listen, and the operating lap sort that that guidance acceleration you as around question. Brad, we of of think growth, QX lapped we we acquisitions of And start points expense both certain Obviously, low-single as know, Xandr. the about year. to, last we

decisions right. very We on So, by moderated very make we have by the see to lots were will get who time because that people we prioritization like revenue to take you headcount the incredibly had that. of impacted cost year-over-year a one decisions of have just of the some we growth the to our we And basis end more get you seriously in QX, are structure talented made. addition with line to in

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

Brad Zelnick

for Thanks color. the

Brett Iversen

Thanks please. Brad. Joe, question next

Operator

Reback with Brad of line Stifel. the proceed. Please from comes question next Our

Brad Reback

there about of continue XXX to evenly still that putting should that favor sort Great. forth, the accelerate think and On approaching really going guys much. with between consolidated you ARPU Office Thanks to very Thanks. and business Commercial, forward starting expense seats? to ROI more are seats XXX here EX million or seats balanced on we the growth you

Amy Hood

from to see seat stuff, you of talked a little you the whether Yes. at growth, moderating might And EX happen reinforce of new bit that I of we ARPU question this more starting had some That’s the this see weakness it, to some that’s because also you will the standalone some ARPU just SKU a we influence. same that have as about, time. of are gathered as especially see quarter and started your good question,

number. in stability Commercial does it XXX revenue Office create some So, that

between environment we given terms quarters this this security data to analytics, just to and four is health, EX workloads. points of moving say, The into And I can seeing good really by out, we see are we very for a you EX have some are do growth that place good of I still I adoption. to ARPU in good as seat adoption. money still there think starting So, in all think this I voice, customers you the or security, And across save help. pointing think are where we where customers want some, of high suite. And have growth, are further is four seen, value getting

Satya Nadella

outside standalone suite, Platform own in And have Pro in workloads. we on being are what user even a of like you. per its also and new Teams were and Microsoft We XXX Power investing other offers even

sort of is there of that work at the amount all scale. So, to we suites a sort we significant of besides do have want

Brad Reback

you Thank much. Great. very

Brett Iversen

Thanks Brad. for Joe, one question. we last time have

Operator

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

Tyler Radke

changed Yes. for Azure Thanks projects just you are larger visibility those extent those way of contribution GPU-powered any on to Azure wanted just if the there the on, to I question. expecting getting Thank you. terms any quantify that AI of contribution you coming or or large potential kind the And is that the are taking ramps. to just of maybe some quarters? the then over pause? put in customer about comment your ask ramps of how customer has Could

Satya Nadella

workloads AI I AI of is versus to too themselves, going sort just the rest start workload a on in the a to just mean even separating And it’s piece, early of out Azure think alone. I the AI core second part be from somehow of workload. the

you will. a it’s So, using compute going bunch also that’s you to to of have bunch GPU going a and in have it’s say, inferencing, of application beyond if bunch other words, an storage if a other inference, of let’s have

think they about your an way their this large changes I I is large to today over On every I the money of and I think in best think into they customers, be that to AI So, there project of characterization obviously, new plowed transformation. workloads going back is whether optimize looking save the to stock. some the is some app that I every that have think time, scale would the customer I say think would That’s at app. commentary to, trajectory, point back any of around

that’s of what large classic pattern So, of sort the is. customers

different, are you right. who ISVs Sometimes have

they what ISV say, are is Difficulty] is an and if So, optimizing, the optimizing [Technical

Amy Hood

want you want Hello. to Hello. you to Do me Hello. the me move? backup? Do use

Operator

and Ladies please Please resume. gentlemen, standby.

Brett Iversen

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

Operator

Ladies and gentlemen, this concludes today’s conference.

You for disconnect Thank your participation. may lines at time. this you your

Microsoft (MSFT) 24 Jan 232023 Q2 Earnings call transcript