Microsoft Corporation
Q1 2015 Earnings Call Transcript

Published: 24 Oct 2014

[Operator:]

Welcome to the First Quarter Fiscal Year 2015 Microsoft Corporation Earnings Conference Call. At this time, all participants 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. I would now like to turn the call over to Chris Suh, General Manager of Investor Relations. Chris, please proceed.

[Chris Suh:]

Thank you. Good afternoon and thank you for joining us today. On the call with me are Satya Nadella, Chief Executive Officer; Amy Hood, Chief Financial Officer; Frank Brod, Chief Accounting Officer; and John Seethoff, Deputy General Counsel. On our website, microsoft.com/investor, we have posted our press release and a slide deck to provide the summary of our results of the quarter. Unless otherwise specified, all growth comparisons we make on the call today relate to the corresponding period of last year. Please note that we have recapped certain prior period amounts to conform with the current period presentation with no impact on consolidated net income or cash flow. Additionally, any reference to operating expenses includes research and development, sales and marketing, and general and administrative, but excludes integration and restructuring charges. We’ll post the prepared remarks to our website immediately following the call until the complete transcript is available. Today’s call is being webcast live and recorded. If you ask a question, it will be included in our live transmission in the transcript and in any future use of the recording. You can replay the call and view the transcript on the Microsoft Investor Relations website until October 23, 2015. During this call, we will be making forward-looking statements which are predictions, projections or other statements about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could materially differ, because of factors discussed in today’s earnings press release, in the comments made during this conference call and in the risk factor 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. And with that, I’ll turn the call over to Satya.

[Satya Nadella:]

Thank you, Chris. Good afternoon everyone. Three month ago I outlined how Microsoft is the productivity and platform company for the mobile-first cloud-first world. Since then we have galvanized around this direction and are executing well. I am proud of the results we’ve delivered this quarter across all businesses. Results are up in every category from commercial to consumer to hardware. With $23.2 billion in revenue for this quarter, we’re off to a great start to the year. More importantly we’re also pleased with the progress we’ve made in evolving our culture to be fast, innovative partner-friendly and customer obsessed. As I reflect on this past quarter, there are four important indicators of progress that I want to highlight

[Amy Hood:]

Thanks and good afternoon everyone. As Satya said, we had a very strong start to the fiscal year. We made meaningful progress with improved execution across all our businesses. I am encouraged by what we have achieved and believe we’re well positioned for the future. With that said, let me take you through the financial highlights of our first quarter. Revenue was $23.2 billion, up 25% over last year and up 11% excluding phone. Earnings per share were $0.54 which included an $0.11 negative impact from integration and restructuring expenses. Excluding that impact, EPS grew 5% to $0.65, even after considering the impact of the phone business on profits. We’re accelerating the pace of decision-making and taking decisive actions to improve how we operate. This approach is reflected in the progress we’ve made in restructuring the company and integrating our phone business. As a result, we incurred charges of $1.1 billion this quarter. Geographically, we saw a strong performance across the U.S. and Europe and consistent with Q4, a more challenging environment in China and Russia. Let me now discuss our results in greater detail. Our commercial business had another strong quarter. Revenue grew 10% and unearned revenue grew 12%. Renewal rates were higher than what we’ve seen in the recent first quarters. And in Office, one-third of renewals included Office 365. Importantly, we are seeing a mixed shift from on-prem to the cloud, from transactional purchasing to annuity and from standard to premium versions. Our commercial cloud services continued their exceptional trajectory with another quarter of triple-digit growth. We’re investing in higher level services and new scenarios in Azure enabled by the scale, cost and flexibility of the cloud. And these services are expanding our addressable market. We’re adding new users and importantly growing revenue from existing on-prem customers who have adopted Azure services. Our on-prem data platform infrastructure product continue to have strong momentum with an ongoing shift to premium version. Revenue from premium skews was up 25% this quarter. Office 365 had another terrific quarter and remains on path to becoming the unparalleled leader for cloud-based productivity apps. CIOs are selecting Office 365 as the center piece of their hybrid productivity solutions as they look to meet the growing mobile needs of their employees. SMBs are also realizing the benefits of Office 365 and as a result are moving from transactional purchasing to subscription. And as Satya mentioned, we’re seeing good partnership momentum as other companies look to integrate other 365 into their products. Turning to Windows. Windows OEM Pro revenue performed in line with the business PC market and volumes were more consistent with those seen before the XP Refresh in fiscal ‘14. Windows volume licensing grew 10% as business customers continued to value the platform security and manageability. During the quarter, we took important steps to grow Windows usage and improve the health of the ecosystem. Both our existing and new OEM partners are bringing to market an expanded set of device offerings at more competitive price points. Channel inventories are higher than they were last year reflecting confidence from our OEM partners heading into the holiday quarter. IP licensing revenue declined this quarter as our license fees fill the higher mix of low-cost devices was generated lower per unit royalty. Consumer Office revenue inclusive of our subscription offerings grew 7% this quarter. Within this, we saw an accelerated transition to Office 365 Home and Personal and contributed to a decline traditional Office license revenue. Overall, it’s important to note that we continued to grow attach to consumer devices. In Bing, revenue was driven by both volume and rate growth, began deliver double-digit monetization gains driven by investments in both relevance and ranking algorithm. These improvements keep us on the path to Bing profitability in fiscal ‘16. And consistent with prior quarters, display revenue remains under pressure. We are excited by Surface Pro 3 performance as unit sales are pacing at twice the rate of what we saw with Pro 2. We’re seeing strong interest from students, professionals and increasingly enterprises who are replacing their laptops and tablets with Surface Pro 3 for their productivity needs. Gross margin for Surface was positive this quarter. Within gaming, our results reflect a growing console market, our improved competitive position with the new Xbox One SKU and the launch of Xbox One into new geos including the initial channel sales with the launch in China at the end of Q1. As we head into the holiday season, we’re looking forward to the differentiated content that will be available on the Xbox platform including Sunset Overdrive which launches in late October and Halo

[Chris Suh:]

Thanks Amy. With that, we’ll move to our Q&A. Operator, can you please repeat your instructions.

[Operator:]

Certainly. We’ll now be conducting a question-and-answer session. (Operator Instructions). Our first question comes from the line of Brent Thill with UBS. Please proceed with your question.

[Brent Thill:]

Thanks. Good afternoon. On the commercial revenue it continues to grow at an impressive double-digit rate. Many of your peers have not been doing quite as well as you have just in the last reported quarter. Amy I know you mentioned you’re confident about this business continuing. I am curious if you could just maybe underscore what you feel you guys are doing differently than what’s happening in the peer group in underscoring that confidence going forward?

[Satya Nadella:]

Let me start. Overall what we see is the increasing competitiveness of our products. And I think that’s really what’s reflected in our results. The cloud story I think is fairly clear at this point. The combination of Office 365, as well as Dynamics CRM in particular combined with Azure are driving our cloud growth. As it turns out the technology that we build for our cloud is what we incorporate in our server products, in fact our R&D expense is the same expense. And that’s made our server products very competitive. And so again those our traditional competitors we’re seeing significant share gains across the entire infrastructure line of our server products in particular. And we hope to architected our cloud very differently. We are the only hyper scale cloud provider that also thinks of our server product at the edge of our cloud. So, some of the hybrid capabilities of ourselves have increasing attach and that’s also leading to our overall competitiveness, as well as monetization and margin. And so those are the trends we see in our numbers. We live in the same macro environment as the rest. But right now we’re confident about our competitiveness driving our results.

[Brent Thill:]

Thank you.

[Chris Suh:]

Thanks Brent. We’ll take next question, please.

[Operator:]

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

[Mark Moerdler:]

Thank you. And congrats on the quarter. Two quick questions on relating to cloud. Amy, can you give us a sense of what the revenue run rate for the commercial cloud was this quarter? And Satya, could you give us a little more on used cases for Azure. Is it more test-and-dev or are you seeing most of it being on the production side? Thanks.

[Amy Hood:]

Thanks Mark. As you know, we gave our run rate at the end of last quarter at $4.4 billion and the course we’ve said in our numbers have us on that continued trajectory as we hedge for Q1. So, I think the pace and our accomplishment to share gains remain on a good trend line.

[Satya Nadella:]

And as far as the used cases, right now it’s actually pretty diversified. We talked pretty extensively about the customer case studies at our cloud event last week. And it turns out that we have ISVs in many cases driving new applications on top of Azure. There are businesses like for example NVC that are reinventing their business models on top of Azure. We have customers using us for true hybrid, if you were deploying for example a SQL server, you can have high availability using Azure that’s a pretty common deployment now using Azure as the backplane for disaster recovery and high availability, that’s for sure is a workload. But at this point I would say, we have emerging ISVs, some of the global ISVs building SaaS applications on top of Azure driving a significant amount of growth of new businesses, the new business models emerging on Azure, as well as hybrid, which I would say are driving. One of the other categories that I see lot of lately is IOT. And the way we participate just on the Azure side, we obviously participate even with our Windows Embedded, but on the cloud side, we are seeing the attach to our emerging machine learning services as well as advanced analytics that’s been one of the place where we are well suited for some of the emerging use cases.

[Mark Moerdler:]

Thank you very much.

[Chris Suh:]

Thank you, Mark. Next question please?

[Operator:]

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

[Keith Weiss:]

Excellent. Thank you guys and very nice quarter. First, a question for Amy. Given these nice gross margin improvements across the board, but did some one-time items. So, I was hoping you could help us understand where you’re seeing sort of underlying gross margin improvements, particularly if we look at sort of any improvements that you saw in the phone gross margins as well as the big improvement we saw in the cloud gross margins, how much of that should we look at as durable on a going forward basis?

[Amy Hood:]

Thanks Keith. Let me start with the cloud and then I’ll move to your phone question. Overall in the commercial business, I think we continue to see gross margin improvement and that is sustainable improvement as opposed to I think what you characterized as some non-recurring things that I have mentioned. It continues to be improvements in scale, improvements in our infrastructure, improvements in utilization, really strong work across all of our engineering teams here. And so I think our year-over-year improvement as well as sequential improvement and our ability in the overall commercial business, you see the gross margins we did has the mix shift to the cloud, I think we’re all quite proud of. Onto the phone business where I did call out non-recurring items due to the business integration expense. I don’t -- easier way frankly to think about that Keith is our Q4 gross margin and our Q1 gross margin. Q4 was a little depressed is how as we think about it due to some of the restructuring; Q1 is a little bit higher. A more blended rate of those two is probably a better way to think about a go-forward margin. Although when you’re transitioning any business and all the hard work that we’re doing here to prepare ourselves going forward, I do expect to see some volatility in that number.

[Keith Weiss:]

Excellent. That’s very helpful. Thanks very much.

[Satya Nadella:]

Just to add one thing that I’d say is sort of -- to Mark’s question, which is in particular on Azure, we have some commodity workloads but we also have many differentiated higher margin workloads especially in the Enterprise Mobility Suite is what I’d call out is a good example of an infrastructure workload completely in the cloud that has got a very different margin structure. And those are the things that really give us the ability to have good margin structure for our cloud efforts.

[Keith Weiss:]

Excellent. That’s great. Thank you very much guys.

[Chris Suh:]

Thank you Keith. Next question please?

[Operator:]

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

[Phil Winslow:]

Thanks guys. And congrats on another great quarter. I had a question on Office 365. Obviously, you all continue to see great growth both on the commercial and on the home and personal side. But we also saw Office commercial products and services continue to grow 5%. So one question for Satya and one for Amy. Satya, how do you feel right now about this momentum, particularly on the commercial side that you’re seeing in Office 365 and sort of how you’re targeting larger enterprises versus SMBs? Then Amy, obviously you’ve talked about some cannibalization of end period revenue from the Xbox, 365, where you could help us kind of frame that 5% this quarter on the product and services and how we should think longer term about the revenue and the profitability there? Thanks.

[Satya Nadella:]

I’ll start and then Amy I’ll turn it over to you. Specifically on Office 365, the overall product depth and breadth is continuously improving. One of the great benefits of Office 365 that our customers get to enjoy is that as we innovate and launch new features they get to use them as soon as we have got them deployed on our cloud. And so, that’s what’s driving both the competitiveness, as well as usage of Office 365 and quite honestly the full consumption of what we build and which I think in the long run is super important to us and our customers. But it also turns out some of the server products we have as we see increasing adoption of the cloud, we still have as I said very competitive server products, I mentioned a lot of our infrastructure server products, but take something like Lync. It’s a fantastic product, it is again gaining share in the marketplace, it’s getting deployed in on-premise solutions. So, it’s the combination that’s driving our growth. The other dimension we’re seeing is Office 365 is cross-platform cloud service. We see now coverage across all devices and that leads to customers still using the service even more. So that combination of effects, competitive server products, very competitive cloud service with new features being added all the time, as well as cross-platform is what’s driving our growth.

[Amy Hood:]

And let me try to take the second part of that question, Phil, which is really through the dynamics of the transactional business to move to the cloud and how I think about bridging those numbers. Our Office transactional business was down this quarter and the difference as you said because of the 5% growth is clearly the growth in Office 365 all up. We go to a place I think always I’d like to point two in terms of triangulating when I look at the health of the overall transition is renewal rates, our renewal rates are amongst the highest we’ve had in the Q1, both our ability to recapture both the contract, as well as the revenue and the value and add services is higher than it has been. In addition, we’re seeing premium units added more frequently in the cloud than we have on-prem. And those types of mixes, you will see both bookings number, as well as in the unearned balance growth. And so, while the exact dollars in any given quarter maybe difficult I guess to triangulate on the components. I always look to see help, I’ve outlined there specifically in the Office business.

[Phil Winslow:]

Great. Thanks guys.

[Chris Suh:]

Thanks Phil. We’ll go to the next question please?

[Operator:]

Our next question comes from the line of Rick Sherlund with Nomura. Please proceed with your question.

[Rick Sherlund:]

Yes, thanks. I wanted to follow-up on Phil’s question. I think that Office transition, our analysis suggest that’s a net benefit from here for you, I’d like Satya some thoughts maybe about the transition for the rest of the business, if you’ve got server and tools at some point, I mean it continues to show really terrific growth at some point, I suppose that becomes cannibalize by your cloud business with Azure. Maybe Satya, if you can share how you think that transition, how long, how does it transpire or any thoughts on you shouldn’t be net additive to the revenues and operating income as we’ve seen on the Office side? Maybe if you could talk on Windows as well, it looks like OEM down a little bit this quarter, which is big than growing or we cannot see a lower ASPs with these $200 devices coming out this fall.

[Satya Nadella:]

Let me talk a little bit about the dynamics we’re seeing in particular with our infrastructure servers, as well as Azure because it is actually pretty unique, I think to at least our product offering. As I said, our servers have become much more competitive because of the same technology investments that we’re making in our cloud. And the used cases that we see in the cloud in many cases happen to be net new workloads, IOT was not driving our server growth traditionally, mobile backend was not driving our servers traditionally. So, a machine learning and advanced analytics of areas we did not participate even in the past. So, one of the things that we have seen is a lot of new used cases of Azure, which were really new Greenfield territory for us. And it turns out that the need for more computing, more storage and more infrastructure server products is much broader than just even the hyper scale public cloud because the one thing that is true is there are more devices in that unit backend. And that backend in many cases in regulator industries with the GEO participation we have is needed everywhere. So one of the things that we are in fact very focused on is enabling others to build their own clouds. So, our private cloud, premium cue mix is also growing you see that in our results. So, at least in the intermediate timeframe, we do not see cannibalization. We see more impact of this hybrid, private, as well as public cloud all being complementary. And of course being used together delivered more value to customers and that’s where our competitive advantage comes. On the Windows side just to finish off. We wanted to make sure that we have competitive Windows ecosystem participation across all the price points. So we made some deliberate changes to our business model and that is in fact playing out in the marketplace where we now have very competitive full Windows PCs less than $199 going into this holiday season. And that in fact in Q1 caused the market to expand. That was really by design and so we are happy to see that. And so on a blended basis, of course the ASPs will be different because of the two ranges. So, but overall that’s what our goal is. We want to be able to make sure that we compete on all price points and overall grow the volume.

[Rick Sherlund:]

Thank you.

[Chris Suh:]

Thanks. We’ll go to next question please.

[Operator:]

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

[Walter Pritchard:]

Hi, thanks. Satya, I’m wondering if you can talk about, you’re seeing some progress on the cloud gross margins and you’re also investing pretty heavily. And I’m wondering how important it is for you kind of medium to long-term to be able to get things like Bing, Xbox LIVE and Office 365 running on the same infrastructure as Azure in terms of getting the kind of sale you want and ultimately driving the margins to where you want it to get to; is that sort of a prerequisite to get to where you’d like those margins to be?

[Satya Nadella:]

Yes. I mean it’s absolute perquisite for us to have entirety of our cloud infrastructure plant drive scale economics for us. And in fact, a lot of the core Azure technology around machine management and data center management comes out of our bring efforts. We manage all of the supply chain, all of it is as one supply chain; we do SKU design as one SKU design; we drive costs of both network storage, compute down altogether. In fact you should think of Azure as the common fabric of all our applications. And you look at even some of our games like Halo, a significant usage of our cloud. And that’s what’s really driving some of the economics. In fact the first -- the fact that -- I celebrate the fact that we don’t have just one first party workload because it’s very easy for one first party workload to completely opt if you will the architecture of a cloud. But in our case, we have a very diverse set of workload. We have Xbox LIVE; we have Office 365; we have Dynamics and Bing and that diversity is what allows us to build in fact for our own needs a cloud architecture that then can meet many more workloads and that’s working pretty well for us.

[Walter Pritchard:]

Got it. Thank you.

[Chris Suh:]

Thanks very much. We’ll take the next question please.

[Operator:]

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

[Heather Bellini:]

Great, thank you so much. Satya, I was wondering if you could share with us given the amazing XP refresh we’ve seen over the last 12 to 18 months, as you’re talking to customers, how do you feel about the corporate PC refresh cycle in calendar ‘15?

[Satya Nadella:]

I think it will come back to the pre-XP business PC refresh. And so that’s what I think Amy’s comments also reflected and that’s what we expect to have happen in the rest of this fiscal year. The thing that Heather we are focused on is how do we make sure that not only do we -- the incremental value that we have today on Windows 8 gets adopted; there are in fact lots of use cases especially around field devices, mobile workforce where we are in fact seeing great adoption of Windows 8. But Windows 10 is something that’s completely optimized for the enterprise and across all same sizes for the mobile worker, as well as the desktop and large screens. Perhaps one of the most unique things about at least our portfolio and our innovation is that we think that it’s the mobility of the individual not the one device. That is important in the enterprise and that’s what we are building towards with great management and great security. And so we’re pleased with the early feedback we are getting from the first disclosure of Windows 10 and as well as some of the successes we are having with Windows 8 adoption in the enterprise. But the adoption I think will get back to a normal PC Refresh in the enterprise.

[Heather Bellini:]

Thank you.

[Satya Nadella:]

Thanks Heather.

[Chris Suh:]

We’ll go to next question please.

[Operator:]

Thank you. Our next question comes from the line of Daniel Ives with FBR Capital Markets. Please proceed with your question.

[Daniel Ives:]

Yes, thanks. Satya, what do you think as you move to the cloud and really try to go into this next phase of growth. Is it biggest challenge and then maybe the biggest opportunity from just a high level as we think about Microsoft going into the next stage?

[Satya Nadella:]

I mean that’s the biggest opportunity is to be able to get into space. I mean one of the things that I always think about it, for all the success we’ve had in our server business, we were a low share player. And when I look at the total IT spend of that enterprise customers have today. As I said, we’ve not participated in many, many areas, we got even the data set. We have a very good business in SQL Server, we have perhaps the most competitive SQL Server product ever in SQL 2014, which is growing nicely. But if you look at what is secular in terms of growth going forward, it’s data, data management in a variety of new ways. So, those are the opportunities we want to be able to take advantage of by doing some good work both in the public cloud, as well as with our server products. The challenge will always remain at the end of the day for us to make sure that we are bringing together unique offers. One of the things that I want to ask team to be very focused on is to bring uniqueness that only Microsoft can bring it to the marketplace. That’s why it is approach around platform and reinvention of productivity, I believe is what we can do that for sure we’re going to have incredible competition. But at the same time, I think that if you ask anyone, at least in our campus whether we deeply get what it means to reinvent productivity I believe do we get deeply how to take the various constituents from end users IT and developers and harmonize their interest in unique ways so that enterprises can adopt solutions, we get that deeply. So, to me staying with that and staying focused on our unique contribution is perhaps are both on opportunity and our challenge and we will obviously index on the opportunity side.

[Daniel Ives:]

Great job on the quarter especially relative to your tech peers. Thanks.

[Chris Suh:]

Thank you, Dan. We’ll move to next question please.

[Operator:]

Thank you. Our next question comes from the line of (inaudible) with Merrill Lynch. Please proceed with your question.

[Unidentified Analyst:]

Hi. Thank you for taking my question. Satya, I just wanted to get your perspective on the business mix. Still you have a very strong and growing consumer footprint especially with Nokia and then you’ve got a very solid enterprise backbone. And I feels like the consumer side of the house is pulling away much faster and obviously you’ve got some implications for how you look at the business in terms of margins and how they did potentially inflect subscriptions. If you can just give us your thoughts Satya on how you see that business mix that will be great? And also wondering, Amy, if you could shed some light on cost controls what further things that specifically the company engage in the sales and marketing expense came in at a nice surprise much lower than we expected? Thank you very much.

[Satya Nadella:]

Thanks. The way I see the market when we sort of talk about productivity and platforms, we really don’t make this big distinction between consumer and enterprise and when it takes productivity out, we’re very focused on dual use. In fact one of the pieces of data that Amy and I shared was the growth in the consumer subscriptions of Office 365 even sequentially grew by significant percentage. So therefore, we’re seeing good adoption of our productivity services, specifically in the context of this dual use where people want to use it at home and people want to use it at work. And that’s where in fact a lot of our R&D investment is to make that very seamless. So, to me that’s how we want to drive and gaming is the one category we have said that we will invest in it for its own sake in driving enterprise value out of our gaming. There are in fact lots of benefits which come because of technology. In fact the reason why we are so competitive now in Cortana and speech recognition which I think is core to productivity is it first started with Connect and Xbox. So, we’ll always have those kind of incidental benefits, but really in gaming we want to have our body gaming, Xbox LIVE console and as well as PC gaming thrive and drive more incremental value for us and Minecraft obviously helps in that context. So that’s how we’ll view the future for how we think about our businesses.

[Amy Hood:]

And on the overall operating expense and how we’ve managed that. In general, I don’t think about it as control using that types of the word. I think what is perhaps most impressive is that we have managed to continue throughout the quarter whether it’s week-to-week or month-to-month to looking at where is the highest ROI we get from our spend, how can we drive our business forward, both in period but also for the future, it’s just as important for us to balance that. And I think we’ve done a very good job of picking those places and really investing intentionally and aggressively behind places where we know we’re differentiated.

[Unidentified Analyst:]

Wonderful. Thank you very much, happy Halloween.

[Chris Suh:]

Thanks [Scott]. Operator, we’ll have time for one more question please.

[Operator:]

Thank you. Our last question comes from the line of Karl Keirstead with Deutsche Bank. Please proceed with your question.

[Karl Keirstead:]

Hi, thanks. Question for Amy, Amy just thinking through your guide by business segment, everything seems roughly in line for the D&C licensing guide which implies I think a 24% year-over-year decline. And given that that’s a 19% gross margin business, I just want to make sure I understand what’s happening there. And I have two questions. I am wondering if you could help disaggregate how much of that is due to the tough XP related compare versus some other perhaps one-time issues that make for a tough comparison. And then secondly, when in your best judgment do you think that D&C licensing revenue might turn positive? Thank you.

[Amy Hood:]

Great. Karl, thanks for asking that question; it gives me a chance to reiterate how many of those components are bit one-time in nature. The first and the largest issue is the end of the Nokia commercial agreement that’s about $650 million that we earned in Q2 of a year ago that because of the ended the agreement simply goes away. So, I’ll start with that point. The second component relates to the same trend we saw in our IP business that we saw in Q4 then in Q1, we’re doing and seeing again in Q2. So, I would also see that exact same trend line and assessment. The next component which is a change is we have actually launched some of our Office 365 consumer services in Japan, which is a Geo that we had not been in historically. That does result in a revenue to fall, it will end up in unearned. But that’s about $100 million impact that we would not have seen before that. And so, by the time you move all of that out of the comparison group, you really get back to very similar trends in our D&C licensing business that we saw this quarter for what I think was a component to you are focused on which is OEM Pro and OEM non-Pro, which we expect to really resemble the results we saw this quarter and marry -- and to matched up PC business dynamics overall.

[Karl Keirstead:]

Okay. That’s very helpful. And if I could sneak in one more, Amy, the 2.9 billion share repurchase, it feels like an uptick compared to what you’ve done every quarter for the last couple of years. Is this sort of a new level that we can expect from Microsoft maybe just a thought on the pace of the share buyback?

[Amy Hood:]

Thanks for the question. I did -- we are proud of the increase in shareholder return this quarter and importantly we’re focused on how we can continue to do that as a part of our overall long-term shareholder growth.

[Karl Keirstead:]

Okay.

[Chris Suh:]

Great. Thanks Karl and thank you Amy. With that wrapped up the Q&A portion of today’s earnings call. Please note that our second quarter earnings call will be held on Monday January 26, 2015. We look forward to seeing many of you in the coming months at various investor conferences. For those unable to attend in person, these events will be webcast and you can follow our comments at microsoft.com/investor. Please contact just if you need any additional detail. And thank you again for joining us.

[Amy Hood:]

Thanks everyone.

[Satya Nadella:]

Thank you.

[Operator:]

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