Greetings and welcome to the Microsoft fiscal year first quarter 2014 earnings. At this time, all lines are in a listen-only mode A brief question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded. It is now my pleasure and now I will introduce and turn the call over to Chris Suh, General Manager of Investor Relations for Microsoft. Thank you, Chris. You may begin.

Our website microsoft.com/investor is our financial summary slide deck, which is intended to follow our prepared remarks and provides a reconciliation of differences between GAAP and non-GAAP financial measures. Our website also includes information related to our new financial report segments, which were announced on September 19, 2013, and discuss with investors on our conference call on September 26. As a reminder, we will post today's 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 any future use of the recording. You can replay the call and view the transcript at the Microsoft Investor Relations website until October 24, 2014. During this call, we will be making forward-looking statements which are prediction, 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, Form 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. Before I hand the call over to Amy, I would like to remind you that all growth comparisons we make on the call today will relate to the corresponding period of last year. Also, please keep in mind that with our new segment reporting structure, adjustments for items such as upgrade offers, tech guarantees and presales are consolidated into corporate other to provide a comparison of operating results. Unless specified otherwise, all impacted numbers for the current quarter have been adjusted for the cumulative effect of last year's revenue deferral related to the Windows upgrade offer, Windows 8 presale, the Office offer and a $113 million revenue deferral in the current quarter, primarily related to Windows 8.1 presale. You can find details of adjustments and reconciliations of differences between GAAP and non-GAAP financial measures in our financial summary slide deck. With that I will turn it over to Amy.

Good afternoon and thank you for joining us today. By now you had a chance to look our press release, earning slide deck, key performance indicators and our 10-Q. Our results have been reported using the new reporting framework I first discussed in our financial analyst meeting in September. Since this is a new way to think about our business, I am sure you will have a lot of questions, so after our prepared remarks, we will allow a little more time than usual for Q&A. With that, let me dive right in. This quarter, we delivered record first quarter revenue. We did it while working through a significant affirmation of our organization and while making significant move to implement our new strategy. Our company is focused and delivering. Our enterprise business remained strong despite a macro environment that some had characterized as tough. We are driving our business forward with industry-leading solutions in the areas like collaboration, unified communications and cloud services, and high customer satisfaction is driving high enterprise agreement renewal rate. At the same time, we are making meaningful progress in our consumer business. We saw growing engagement and adoption across our major consumer services, including office 365 Home Premium, Skype, Bing and SkyDrive. With the new Windows, we are building high value experiences for our consumers that allow people to use our devices and services all day long whether at work or at home. From a geographic perspective, we saw broad based revenue growth. Overall both, developed and emerging markets showed strengths. The U.S. and parts of Western Europe were particularly strong, while China was weak. Now, let me share some quick thoughts on the PC market which turned out better than we had expected. We are seeing signs of stabilization in the business segment with…

Thanks, Amy. First, I will review our overall results and then I will move on to the details by business segment. Total revenue was up 7% to $18.6 billion and came in at about $700 million better than our expectations. Without the impact of foreign exchange, revenue would have been $200 million or one percentage point better. Annuity revenue was particularly strong and grew 11%, driven by commercial performance. Cost of goods sold increased 23%, which was in line with our expectation of over 20% growth. This increase was primarily due to service cost and also higher depreciation related to the CapEx investments we made this quarter for cloud services strategy. As a result, gross margin grew 3% to $13.5 billion, reflecting the changing mix of our revenue. All up, operating expenses grew 8%, which was generally in line with our expectations with the exception of G&A, which declined due to lower legal expenses. We continue to be thoughtful and diligent in how and where we focus our resources, in advertising, the [keynote], embraced One Microsoft and the benefits are already accruing with improved messaging and results. In R&D, we are continuing to focus our resources while accelerating our cadence. Operating income and earnings per share, both declined 3% to $6.4 billion and $0.63, respectively. Unearned revenue grew a healthy 14% to $20.1 billion and our contracted not billed balance grew to over $21 billion, driven by commercial strength. Our inventory balance sequentially increased by $675 million, mostly due to build the Xbox 360 and Xbox One. Ahead of holiday selling season, Xbox represents over half of our inventory balance. Inventory for Surface products declined sequentially even as we built levels ahead of this week Surface 2 and Surface Pro 2 launches. This quarter, we announced a 22% increase in…

Thanks, Chris. As we look towards the second quarter, we are assuming the macro environment remains generally the same. With this, we expect many of the dynamics we saw in the first quarter to continue with strong performance in our commercial business and ongoing improvement in our consumer business. Importantly, we are set up for a terrific holiday season. We will have a wide variety of Windows-based devices in market. Earlier this week, we launched Surface 2 and Surface Pro 2, and in November, we will launch our next generation console, Xbox One. Building on the performance and unique experiences that gamers love, it will also deliver an innovative entertainment experience by bringing movies, music, sports and live TV together in one place. With that, let's get into the outlook. Starting with Devices and Consumer. In Licensing, we expect revenue to be $5.2 billion to $5.4 billion. This range reflects similar dynamics to what we saw in the first quarter. As I noted earlier, we expect the business PC market to be stable, however, the consumer PC market is subject to more volatility. In Hardware, we expect revenue to grow 35% to 45% to $3.8 billion to $4.1 billion, reflecting the expanded Surface line up and the much anticipated Xbox One launch. The 10 percentage point range reflects variability in device unit volumes. In the consumer hardware business, such variability is not uncommon, especially during launches and the holiday season. In Devices and Consumer Other, we expect revenue to be $1.7 billion to $1.8 billion. Search revenue should continue to grow reflecting improved revenue per search and query volume. As a reminder, in Q2 of the prior year, we launched Halo 4, which contributed $380 million of revenue to this segment. Now, moving onto Commercial. We expect revenue to grow…

Thanks, Amy. With that, we are going to move on to the Q&A. Operator, please go head and repeat your instructions.

Thank you. (Operator Instructions). Our first question comes from the line of Brent Thill with UBS. Please proceed with your question.

Good afternoon. Amy, Chris, thanks for the additional details. I know everyone appreciates the forward looking details. My question is on the commercial revenue, obviously an impressive number in a seasonally soft Q1. Your guidance assumes also a continued good trajectory. Maybe if you can walkthrough why you think you are outgrowing your peers and what has led to this double-digit number?

Thanks, Brent, for that question. When I think about the commercial business and focus on our unearned revenue growth of 14%, plus our bookings growth, which was quite strong as well, 6%. I think about the roadmap. The strength of the commitments the customers are making, is really forward-looking. It's a three-year commitment to the Microsoft platform both, to our cloud and on-prem solutions, the breadth and strength of that roadmap and our offerings, and in many ways that's what gives us the confidence that we are outperforming our peers. Also I it speaks a lot to the innovation in the roadmap we have shown, whether it's for Azure, Office 365 or our broader Server, what's the word, portfolio. I do feel quite good about both our competitive position and our ability to execute. I think we did a great job in the field this quarter, remaining focused on delivering what we needed to deliver to our customers and we were quite pleased.

Thanks, Brent. Next question, please.

Thank you. Our next question comes from the line of Phil Winslow with Credit Suisse. Please proceed with your question.

Hi, guys. Thanks, guys, and congrats on a great quarter. I just want to focus in on Xbox and Xbox platform. Amy, I wonder if you could give us maybe some color on how it performed this quarter, but in particular as you look into the December quarter here, obviously, you gave that gross margin guidance. But I was wondering if you could talk high level about how you are approaching the Xbox One launch play versus Xbox 360, from a perspective of how you are pricing it relative to COGS and just how the build of Xbox One looks versus 360?

Thanks, Phil. I think it's a great question that gives me the opportunity to talk about the breadth of the portfolio that we will have to offer at holiday. And then talk a little bit about the gross margin profile and philosophy we have about those products. We are excited that we will have a great value offer at holiday with Xbox 360 and we will also have a great choice with our innovative Xbox One platform to really give us a good breadth rolling into holiday of selections across price points. We did, with Xbox One, make a decision to really enable a first-class experience out of the box. There's Kinect, there is a headset and there is the console. And depending on where you are around the globe, there may be a game included as part of bundled per geographic interest. As I have said, the best way always, to think about the life value of the Xbox plan is over its lifecycle. I am excited about the increased opportunity that Xbox One allows us to attach more and different services beyond what we have historically thought of it as simply a gaming platform and when I think about the opportunity going forward, it is important in Q2 to realize that will impact our growth margin in the short-term but winning the platform at holiday and our positioning to do that allows us to grow profitability in a far different way over the lifecycle. So hopefully, that helps.

Great, Phil. Thank you. Let's move on to the next question, please.

Thank you. Our next question comes from the line of John DiFucci with JPMorgan Chase. Thank you. Please proceed with your question.

Thanks. Amy, billings were about what we modeled for the quarter but deferred revenue was about $700 million less than we expected anyway, which was equal to the upside in revenue. So I am just curious, did you end up recognizing a greater portion of revenue upfront this quarter than you normally would? Because like I have realized, given how you recognize revenue, I guess the question could be said, was the transactional portion of the revenue in the Commercial segment greater than it is typically this quarter?

Hi, John. This is Chris. I am going to jump in a little bit and let me Amy add on. I think the way to think about, the way we think about it is, we did see growth across annuity and non-annuity in the business. But also the changing dynamic is the mix of the dollars that are going into unearned revenue. As we build more contracts in some of our subscription offerings, that also changes the nature of the term. If you think about one-year subscription offerings and things like this, that has a little bit of effect on unearned revenue balance as well.

Let me add a little bit. I would have said, John, both of those things you said are true and both are good, which is I do think our unearned balance growing 14% year-over-year was better than we actually had expected, from our perspective. And we also saw very good non-annuity performance within the quarter, particularly in Office and in SQL which, I think, are very good signs, we believe, for both to see the strength broad based. As you know the annuity portion tends to be related to large customers making long-term commitments, some of the non annuity is exciting, but it tends to be smaller customers who have decided to go ahead and upgrade to the most recent version of Office, which is also encouraging.

We will move to the next question please, operator.

Certainly. Our next question comes from the line of Walter Pritchard with Citigroup. Please proceed with your question.

Hi, guys. This is Ken Wong for Walter. I guess, we wanted to focus a bit on Windows, and the OEM business was down just 7% this quarter versus down 15% last quarter and what seemed like you guys had a lot of pressures on ASPs and what not. What drove sort of the quick turnaround from quarter-to-quarter? Maybe if you could just dig in a little bit there.

Let me try to break it up a little bit, Ken, to make sure I understand and get a chance to talk about the overall performance. Business was better than we expected, so actually ASPs were probably higher than many people had modeled and than we had expected, due to mix Growing 6% in the Pro segment was both, better than we expected and probably better than many people had considered. In the Consumer segment, the minus 22, taking out China to minus 17, I think is generally overall you take those two numbers probably in line with most of the device level estimates for PCs we have seen across the industry and from some of our peers reporting into system. I do think, we were impacted by some inventory levels. It did come down a bit actually this quarter as well, so I think overall we do think that things were probably more stable in the business segment and encouraging and then consumer and developed markets particularly were better than we had seen.

Thank you, Ken. Yes. Next question please. Thank you.

Certainly. Our next question comes from the line of Keith Weiss with Morgan Stanley. Please proceed with your question.

Excellent. Thank you, guys, for taking the question. You saw a real market uptick in the advertising revenue, with the search advertising revenue. Any particular accounts you could point us to and sort of what really canalized that part of the business and how sustainable that's going to be on a go forward basis?

Sure. Thanks, Keith. A couple of things. It was or going to - as you noted both by RPS improvements and volume improvements which is encouraging. I also think underlying matters some real technical improvements we made within the search engine, algos are better and the investments we are making are really allowing us to monetize at a higher level. We also saw some strength in a few other geos, which helped increase the performance there, so I do believe that that trend we expect to continue into 2Q.

Excellent. Thank you, guys.

Next question please?

Thank you. Our next question comes from the line of Heather Bellini with Goldman Sachs. Please proceed with your question.

Hi. Great. Thank you, Amy and Chris. I just was wondering, you talked about the entry of a lot of new SKUs that are coming out for the holiday season. As we start thinking about building our OEM models, how do we think about for ASPs for this eight-inch and below category that you referenced there is a lot of product coming out with?

Good question, Heather. Let me talk about first the importance of the breadth of the offers that we are putting into market. With Windows 8.1, one focus we had was to expand both, the opportunity for screen sizes and to reach new price points and to cover really from the smallest to the largest with touch and non-touch. I think our ability to work with partners and some of the sales execution we have seen in the fields has led to have a broad opportunity at retail for holiday for devices. It is important. I do hope in some ways, this is a question that's a bit awkward. You always want to say ASP. It's good to have ASPs go up. Transparently going forward as we make more progress, especially in the smaller screen sizes, we should expect units to go up and be very excited about that in terms of share, but ASPs would trend down. I don't think that will have a material - our guidance does not assume a material impact to ASPs in Q2, but over the long-term I actually do understand the question and would expect ASPs to be on that trend line assuming we are successful in those lower end device sizes.

Thank you very much.

Thanks, Heather.

Thank you. Next question, please.

Thank you. Our next question comes from the line of Mark Moerdler with Sanford Bernstein. Please proceed with your question.

Thank you. And Amy, thank you, of course, for giving so much more data in guidance. We appreciate it. A couple of quick attached questions. You had said that the consumer Office last quarter was going to be down roughly 5% lower than the PCs due to the move to subscription. You said the attach was higher this quarter. Should we think that the dip was roughly in line with that?

Yes. Hi, Mark. This is Chris. Let me try to clarify the numbers, just so we are all on the same page. So we did say consumer Office did decline this quarter. Last quarter, you were right, we said about 5 points of impact. So the impact indeed was about what we expected but with the increase in attach, they tended to offset each other in the end. So the numbers came in pretty much as expected. So I think that's the right way to think about it.

Okay, perfect. That makes sense.

Of course, I can't let Chris, I am going to add a little bit to the answer. Sorry. Mark, I do think it's important for us to continue to reiterate the importance of the success of the Office 365 Home Premium SKU from a strategic standpoint. We have done a very good job and I would say, as a mix percentage of the SKU, it continues to do even a little better than we had hoped in terms of execution at the endpoint and driving value. While that does have an impact on the initial ASP of the SKU, the long-term lifetime value of that product, in my belief, given the always up-to-date, first to see innovation, use across multi-endpoints, inclusion of Skype, inclusion of SkyDrive, really does allow for a higher lifetime value and ultimately a happy customer. So I really am encouraged by our progress and our execution there.

Beautiful. One other quick question. Any sense for what Commercial Licensing would have been if not for the move to cloud and subscription? Does it make a material change yet at this point?

No. The best way to think about that, Mark, is if you look at, it's not an exact offset, but when I talked about the Commercial business all up, I gave the construct around products like Commercial Office, Commercial Server as all up across both prem, on-prem and Commercial. So we talked about Office growing 11% across both Commercial Licensing and Commercial Other in aggregate. If you look at the specific segment, you will see that Office in the Commercial Licensing segment actually grew 6%. So you can see that we are having outsized growth in the Commercial Other segment which is Office 365. So that, maybe, helps at least dimensionalize the size of the growth in relative term.

Perfect. I really appreciate it. Thank you, both.

Welcome.

Thank you. Our next question is from the line of Rick Sherlund with Nomura Securities.

Thanks. Just to follow-up on Mark's question. I believe there was a slide at SAM that showed about $150 million of negative impact in the quarter from the move to the cloud which, in and of itself, it's about 1% of revenue. So it's kind of not a very big deal. And I think most of that was from Office versus Server and Tools. So if you say it's about as expected, I guess I am just looking for some clarification here. Is the really only impact we are seeing in the Office segment versus Server and Tools or is there much impact in that part of the business from the move to subscription.

Rick, let me clarify. The $150 million, you are right. It was actually just related to the consumer Office segment and had no broader connotation beyond that. So that $150 million in a quarter on consumer Office actually does have a meaningful impact to the gross of that especially versus PCs. So that being said, obviously, if we talked about the momentum in our broad Office 365 revenue, it is a bigger impact across not just Office, because I think that's actually not the way of thinking about Office 365 impact. There it's really around Exchange, Lync, SharePoint and the board Server impact there is actually more meaningful than its impact on maybe Office clients on the commercial side.

Thanks, Rick. Next question, please.

Thank you. Our next question comes from the line of Ross Macmillan with Jefferies. Please proceed with your question.

Thanks a lot. I have two questions. Just first on the Device and Consumer Licensing business. Your forecast for Q2 suggest some moderating decline and I was curious as to whether on the corporate OEM side, if you will, that's just a reflection of the ongoing stabilization trend or do you also expect to see improvement on the consumer OEM side? Related to that, how do you think about the impact of the end of life of XP on the corporate OEM side? Do you think that the improvement is completely unrelated to that end of life forthcoming or do you think there could be some impact related to that? Thanks.

Great. Let me divide that question. I think and you said two parts. Our Q2 guidance for devices and consumer licensing, really says that the trends we saw in Q1 on both sides continue in Q2, so I think that's an important distinction as you noted and asked for clarification on, so I hope that's helpful on that component. When it comes to end of life of XP, I tend to think about that more on the VL side as well and the strength there which will be in the commercial reporting segments. We continue to make progress on the XP install base and now a little over 75% of the PCs are running 7, so I do think as we continue to get to end of life of XP, you will see the impact more on the VL side of the business than you would in the device and consumer licensing segment.

Thank you very much. It's helpful. Maybe one quick follow-up? Just on the Office business overall in the Commercial segment. If you think about units, whether licensed or 365, when you just think of the aggregate pool of units, you sort of alluded to it before, but did that perform in line with your expectation or was it actually slightly better on a unit basis? Thank you.

It was slightly better for Office, the best way of taking about that from a unit perspective.

Thank you very much. Congratulations.

Thanks, Ross. We will take next question please.

Certainly. Our next question comes from the line of Ed Maguire with CLSA. Please proceed with your question.

Hi. Thanks for taking my question. I was wondering if you could address the conditions in China in a little bit more detail, not just on the consumer but also in the commercial as well as what your expectations might be given the lifting of the ban on game consoles for Xbox there, and also if you could just address what you are seeing in terms of your commercial cloud adoption outside of the U.S. Thank you.

I will take the first part of the question, so yes as I said on the call, the macro conditions in China, which is I think consistent with what some of the other companies that reported as well have been challenging. Our total revenue across all of our business, including PC related businesses were down year-over-year and I think that's overall impacting our results in China all up. I think the second part of your question was related to? Sorry, can you repeat your second question.

Sure. Well, I was wondering about Xbox expectations there, but also the trends of commercial cloud adoption in areas outside of the U.S.

We haven't really talked specifically about our expectations for China on the Xbox, but let me take the second half of that question. Our performance in both, Office 365 and Azure has actually been quite good both, in the U.S. to your question and outside the U.S. Part of the reason that you have seen us investing on the capital expense side is to continue to build out the opportunity set, because we are seeing good demand outside the U.S. As you think our ability to be competitive there is just as high as it is here, so we have already seen that growth.

Thank you.

Great. Thanks, Ed. Next question please?

Thank you. Our next question comes from the line of Jason Maynard with Wells Fargo. Please proceed with your question.

Good afternoon. I wanted to drill a little bit into how you are thinking about holiday on the consumer hardware side and specifically just expectations around Surface, and then also any insight or color you think in terms of what your expectations are with RT versus Pro? Thank you.

Thanks, Jason. I think, overall, for holiday, given our guidance, we clearly do expect a healthy holiday performance across the portfolio. I say that because we do have offerings that provide great value from having Surface V1 RT still in market, Surface 2, Surface 2 Pro plus Xbox 360 plus Xbox One really does provide both a value portfolio and those who want the latest and greatest experience have something covered. The guidance does include good performance across all of those product lines. We did see, I think as Chris and I both talked about, a lot of progress in sales execution on Surface, in particular this quarter. And that does give us more confidence about our ability to execute again well in Q2. In particular, as you know, our RT did do quite well this quarter. And I look forward to seeing that continue with the Surface 2 device as well in holiday.

Thank you, Jason. We will move to the next question, please.

Thank you. Our next question comes from the line of Kash Rangan with Bank of America Merrill Lynch. Please proceed with your question.

Hi. Thank you very much for all the details as well. Maybe my math skills have gotten horribly weak, but I just took the mid-point, Amy, of your revenue guidance for the different line items and also the mid-point of your cost of revenue inputs and the midpoint of your OpEx and I comp with what looks to be about a 10% reduction to where, I think, most sell-side models or maybe I am hoping that I did something wrong here, but if that's the case, I get about 29% op margin relative to the 33% or so that you did last year. So can you just walk us through what are items that you are assuming in your cost structure which effectively makes the op income flat, although you are getting good revenue growth rate. I just wonder if there were any one time items or if it's just emblematic of a shift in your business model devices and consumer, especially with Nokia going forward? Wonder if we should not be thinking about op margins but really op income growth rate? Thank you.

Thanks, Kash. I think the one thing I would urge you to do, as you think about the guidance we gave, is looking specifically at the D&C Hardware guidance as well as making sure you are mapping the COGS very specifically to whatever assumption you are making in D&C Hardware, given the business model of Xbox that can and will have an impact in Q2 to the overall gross margin structure. So as you think through that, I think that's probably one of the assumptions that it may sound like using the midpoint could lead you a bit off, off of where I would have expected.

Got it. Thank you very much.

Thanks, Kash.

Next question, please.

Thank you. Our next question comes from the line of Raimo Lenschow with Barclays. Please proceed with your question.

Thank you. I just wanted to follow-on from Jason's question earlier on. Can you talk a little bit about where you see the improved success and the sales execution success on the Surface? Is it kind of Commercial? Is it Consumer? And what's driving the improvement there? And how much is the improved revenue run rate, also driven by the fact that the channel needed to be ready for the holiday season? Thank you.

Hi, Raimo. Thanks for the question. As we talked about, especially for this last quarter, Surface, we saw two things I will mention which is popularity of the Surface 32 gigabyte RT device. That one was more successful this last quarter. And we actually saw demand increase in both commercial and in the education customer segment as well. So we did see some improvement across both of those segment.

Yes, I would say that another way is that, it was in retail and in education was where our RT performance.

Yes, sorry. I meant actually -

So I just want to make sure that was clear. It really was better execution at retail and in edu and I still look forward to building a commercial channel which we are just starting to do as we continue to add resellers to our model.

Perfect. Thank you.

Thanks.

Thank you. Our next question comes from the line Brendan Barnicle with Pacific Crest Securities. Please proceed with your question.

Thanks so much because I had two quick ones. One was, the SQL Server success continues to be very impressive particularly relative to the field. So I am wondering where you are seeing the most success there? Is that market share gains? Is that pricing getting into some new markets? If you could provide any color there that would be helpful? Then when is your expectation for the next update on OEM?

Great. Let me take the second one first because it's the easiest. We still do expect transaction to close in the first calendar quarter of 2014, and post closing if there are any EPS impact changes to what we said before we will give them post-closing, so now back to your original question on SQL. That's a terrific one to get to talk about. Our growth there is as you said both, share growth and revenue growth. It happens, I think, generally both, in BI which we have seen a lot of traction with. I don't know if you have had a chance to see some of our Power View announcements recently. Our ability to sort of span from the end user to the hardest Big Data problems really has resonated both, in the market and with industry analysts who has taken a strong position that we are the real market leader there. The other thing I would say is, a very healthy performance of our premium SKUs. Our premium SKUs have continued to provide market growth and I think are competing quite well with the competition.

Great. Thanks, guys.

Thanks, Brendon. Next question please.

Thank you. Our next question comes from the line of Gregg Moskowitz with Cowen & Company. Please proceed with your question.

Thank you very much and good afternoon, guys. Just two questions. First, Amy, if I recall correctly, I believe last quarter you had mentioned an expectation for double-digit annuity growth in fiscal '14. Is that still how you are thinking about the annuity part of the business? Secondly, the year-over-year cloud revenue growth you reported was certainly impressive, but I was wondering if you could shed some light perhaps on how much of Azure billings or revenue are incremental versus [ballistic]?

Too good question, I do expect our annuity growth and the guidance we gave it still does assume double-digit annuity growth going forward, and I think our performance this quarter gives me confidence that the guidance in Q2 is the right one given our strengths and our competitive position. Secondly, on cloud revenue, your question gives me an opportunity to talk about the importance of our hybrid cloud. Within especially our server business, our ability to power the cloud whether you want to run it, you want a service provider to run it or you want to use ours, is really an incredibly powerful story and I think in some ways whether or not cannibalizing becomes somewhat difficult. What we generally found right now is that it has been often additive, if you look at our server growth all up which we try to provide to help give some parameters around that, to give us some confidence that we are both, growing the base and providing additive opportunity. I think that's the number I would probably look to, to see the impact there.

Great. Thanks very much.

Thank you.

Operator, I think, we are down to our last question.

Certainly. Our last question comes from the line of Kirk Materne with Evercore. Please proceed with your question.

Thanks for fitting me in. I guess, two quick ones for you, Amy, on the commercial cloud offerings. I guess, first, around Office 365, you mentioned you have seen pretty good uptake even outside the U.S. I was interested in just your ability to monetize Office 365 in some of the emerging markets that have been challenging over time for Office. Then secondly, as a follow-up to Gregg's question on server, within Azure, how much of the uptick in Azure is coming from sort of existing Microsoft logos versus bringing on net new logos onto the platform? Thanks.

Great. Thanks, Kirk. Two things, I do think it's interesting. Maybe the best example of how to think about us moving beyond our traditional markets is the fact that we were the first to commence a data center in China, a market that we have historically had challenges monetizing at a high level. We went there, we are going there with Office 365 and Azure, we look forward to being able to make progress, we are investing both, headcount and capital dollars, because we do believe this provides interesting opportunity for us to begin monetizing end markets that have been harder for us to grow, maybe with our more traditional business model. Secondly with Azure, I think we have seen both, but the thing I would say is what has been really helpful is that as we make it easier to attach Azure services to our normal rhythm in the field for enterprise agreements and through licensing. It provides a really helpful way and a really easy selling motion to provide customers flexibility. We added in the normal rhythm of the sales motion. We allow people to try, use and buy. And that has served us well in terms of being able to expose Azure to more and more customers in a normal selling cycle. So I think that's probably one of the better ways. It's the same actual selling rhythm we have used with Office 365 so successfully. And with that, I wanted to say thank you. I know that this quarter, we changed reporting segments and that requires a lot of work. So thank you for all the work put in to understand our transition that we are trying to make as a company. So I am going to turn it back to Chris to say his final words.

So that wraps up today's earnings call. We look forward to seeing many of you in the coming months at various investor conferences. For those of you unable to attend in person, these events will generally be webcast and you will be able to follow our comments at microsoft.com/investor. Please contact us if you need any additional details and thanks for joining us today.

Thank you.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time and thank you for your participation.