Microsoft Corporation (NASDAQ:MSFT) Q4 2019 Earnings Conference Call - Final Transcript

Jul 18, 2019 • 05:30 pm ET


Microsoft Corporation (NASDAQ:MSFT) Q4 2019 Earnings Conference Call - Final Transcript


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Amy Hood

to the volume of equity vests that take place during our first quarter.

And, finally, as a reminder on Q1 cash flow, we will be making a $4.7 billion tax payment related to the TCJA transition tax and the Q4 transfer of intangible property.

Now, I would like to share some comments on FY20. First, FX. Assuming that current rates remain stable, we expect FX to reduce full year revenue and COGS growth by 1 point. FX should have no impact on operating expense growth.

Next, revenue. At the company level, we continue to expect double-digit revenue growth with another year of strong performance and continued momentum in our commercial business. As a reminder, our commercial licensing and OEM Pro businesses in the second half of the year will be impacted by a comparable that benefited from the end of support of SQL server 2008, Windows server 2008, and Windows 7, as well as transactional strength in Japan.

We expect revenue in our gaming business to be down slightly year-over-year as double-digit growth in Xbox software and services will be offset by declining console sales. We do expect a stronger H2 than H1 in Gaming as we work through a third-party title comparison.

And, as a reminder, an increasing number of large, long-term Azure contracts will drive more quarterly volatility in our commercial bookings and unearned revenue growth.

Next, Commercial Cloud gross margin. Revenue mix will continue to shift to our Azure consumption-based services. Even with this headwind, we expect Commercial Cloud gross margin percentage to be up slightly as we again drive meaningful improvement in Azure gross margin. Capital expenditures will increase to meet the growing demand for our cloud services.

Finally, on operating expenses, we will continue to invest given our strong execution, our growing competitive position, and our significant ambition in high growth areas. Investment in areas like Cloud through AI and GitHub, Business Applications through Dynamics, Power Platform, and LinkedIn, Microsoft 365 through Teams, Security, and Surface, as well as Gaming should result in operating expense growth of 11% to 12%.

Even with these strategic investments, the continued shift to our cloud business, and our very strong finish to FY19, we expect double-digit operating income growth as well as stable operating margins. We are looking forward to FY20.

With that, Mike, let's go to Q&A.

Michael Spencer

Thanks, Amy. [Operator Instructions]