Microsoft Corporation (NASDAQ:MSFT) Q1 2021 Earnings Conference Call - Final Transcript

Oct 27, 2020 • 05:30 pm ET

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Microsoft Corporation (NASDAQ:MSFT) Q1 2021 Earnings Conference Call - Final Transcript

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Presentation
Executive
Amy Hood

we expect revenue between $13.2 billion and $13.6 billion. In Windows, on the strong prior year comparable, overall revenue should decline in the high single digit range. In our OEM business, we expect another strong quarter in OEM non-Pro, but OEM Pro will again be impacted by the lower commercial demand. In Windows commercial products and cloud services, we expect healthy annuity billings growth driven by the continued demand for our advanced security solutions. However, growth will be materially impacted by a lower mix of multi-year agreements that carry higher in-quarter revenue recognition primarily due to the declining expiry base and a large deal in the prior year.

In Surface, revenue will be relatively unchanged, impacted by the year-over-year timing differences of product lifecycle transitions noted earlier. In Search ex-TAC, we expect revenue to decline in the mid to high-single digit range. And in Gaming, we expect revenue growth in the high 20% range. We expect very strong demand following the launch of our next generation Xbox Series X and S consoles driving supply-constrained hardware revenue growth of approximately 40%. We also expect negative gross margin impact from console sales this quarter, as we invest against the growing life-time value of the platform. Xbox content and services revenue should grow in the low 20% range, with strong engagement and continued momentum in GamePass subscribers. As a reminder, our outlook does not include ZeniMax, which we still expect to close in the second half of the fiscal year.

Now back to Company guidance. We expect COGS of $13.75 billion to $13.95 billion and operating expense of $11.4 billion to $11.5 billion. In other income and expense, interest income and expense should offset each other. And finally, we expect our Q2 tax rate to be approximately 16%.

In closing, I'd like to share a few thoughts as we look beyond the next quarter. As digital transformation accelerates and our sales teams and partners continue to execute well in serving customers, our high value solutions should drive full-year double-digit revenue growth in our commercial segments even in a challenging and competitive environment. Given our significant ambition, desire to enable our customers' visions for their future, and the opportunity that creates, we will continue to invest in high growth markets and strategic areas that will further enhance our position.

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

Executive
Michael Spencer

Thank, Amy. We'll now move over to Q&A. As a respect to others on the calls, we request that participants please only ask one question. Operator, can you please repeat your instructions?