Performance

Revenue increased $9.3 billion or 18% driven by growth across each of our segments. Intelligent Cloud revenue increased driven by Azure. More Personal Computing revenue increased driven by Gaming. Productivity and Business Processes revenue increased driven by Office 365 Commercial.

Cost of revenue increased $2.1 billion or 12% driven by growth in Microsoft Cloud and Gaming, offset in part by a decline in Devices.

Gross margin increased $7.1 billion or 20% driven by growth across each of our segments.

• Gross margin percentage increased. Excluding the impact of the prior year change in accounting estimate for the useful lives of our server and network equipment, gross margin percentage increased 2 points driven by improvement in More Personal Computing.

• Microsoft Cloud gross margin percentage of 72% was relatively unchanged. Excluding the impact of the change in accounting estimate, Microsoft Cloud gross margin percentage increased 1 point driven by improvements in Azure and Office 365 Commercial, offset in part by the impact of scaling our AI infrastructure.

Operating expenses increased $505 million or 3% driven by Gaming, with 11 points of growth from the Activision Blizzard acquisition, offset in part by 7 points of favorable impact from the prior year Q2 charge.

Operating income increased $6.6 billion or 33% driven by growth across each of our segments.

Revenue, gross margin, and operating income included a favorable foreign currency impact of 2%, 2%, and 3%, respectively.

Prior year gross margin, operating income, net income, and diluted EPS were negatively impacted by the Q2 charge, which resulted in decreases of $152 million, $1.2 billion, $946 million, and $0.12, respectively.