Microsoft 2015 Annual Report Download - page 27

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26
D&C Licensing gross margin increased $454 million or 3%, primarily due to a $353 million or 14% decrease in cost of
revenue. D&C Licensing cost of revenue decreased, mainly due to a $411 million or 23% decline in traffic acquisition
costs.
Computing and Gaming Hardware
Computing and Gaming Hardware revenue increased $2.9 billion or 48%, primarily due to higher revenue from the
Xbox Platform and Surface. Xbox Platform revenue increased $1.7 billion or 34%, mainly due to sales of Xbox One,
which was released in November 2013, offset in part by a decrease in sales of Xbox 360. We sold 11.7 million Xbox
consoles during fiscal year 2014 compared with 9.8 million Xbox consoles during fiscal year 2013. Surface revenue
increased $1.3 billion or 157%, mainly due to a higher number of devices and accessories sold.
Computing and Gaming Hardware gross margin decreased slightly, due to a $3.0 billion or 58% increase in cost of
revenue, offset in part by higher revenue. Xbox Platform cost of revenue increased $2.1 billion or 72%, mainly due to
higher volumes of consoles sold and higher costs associated with Xbox One. Surface cost of revenue increased
$970 million or 51%, mainly due to a higher number of devices and accessories sold, offset in part by a charge for
Surface RT inventory adjustments of approximately $900 million in fiscal year 2013.
Phone Hardware
Phone Hardware revenue was $2.0 billion in fiscal year 2014, reflecting sales of Lumia phones and other non-Lumia
phones following the acquisition of NDS on April 25, 2014. Since the acquisition, we sold 5.8 million Lumia phones
and 30.3 million other non-Lumia phones in fiscal year 2014.
Phone Hardware gross margin was $54 million in fiscal year 2014, reflecting revenue of $2.0 billion, offset in part by
$1.9 billion cost of revenue, including amortization of acquired intangible assets and the impact of decisions to
rationalize our device portfolio.
D&C Other
D&C Other revenue increased $583 million or 9%, mainly due to higher online advertising revenue and Office 365
Consumer revenue, offset in part by a $213 million decrease in first-party video games revenue, primarily due to the
release of Halo 4 in the second quarter of fiscal year 2013. Online advertising revenue increased $497 million or
14%. Search advertising revenue increased 39%, primarily due to increased revenue per search resulting from
ongoing improvements in advertising products, higher search volume, and the expiration of North American revenue
per search guarantee payments to Yahoo! in the prior year, offset in part by a 25% reduction in display advertising
revenue. Office 365 Consumer revenue grew $316 million, primarily reflecting subscriber growth. We ended fiscal
year 2014 with over five million subscribers.
D&C Other gross margin decreased $558 million or 29%, due to a $1.1 billion or 25% increase in cost of revenue,
offset in part by higher revenue. D&C Other cost of revenue grew, mainly due to a $541 million or 24% increase in
online advertising cost of revenue, reflecting support of online infrastructure. Cost of revenue also increased $219
million or 15%, due to higher resale transactions costs.
Commercial
(In millions, except percentages) 2015 2014 2013
Percentage
Change 2015
Versus 2014
Percentage
Change 2014
Versus 2013
Revenue
Licensing $ 41,039 $ 42,085 $ 39,778 (2)% 6%
Other 10,836 7,546 5,661 44% 33%
Total Commercial revenue $51,875 $49,631 $45,439 5% 9%
Gross Margin
Licensing $37,830 $38,615 $36,280 (2)% 6%
Other 4,199 1,855 922 126% 101%
Total Commercial gross margin $42,029 $40,470 $37,202 4% 9%