Earnings Call: Q1 2011

Oct 28, 2010

Welcome to the Microsoft First Quarter Fiscal Year 20 11 Earnings Conference Call. Tone phone. Today's call is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the call over to Mr. Bill Kofed, General Manager, Investor Relations. Sir, you may begin. Thank you, Bar, and thank you everyone for joining us this 18. As usual, with me here today are Peter Klein, Chief Financial Officer Frank Brode, Chief Accounting Officer and John Ciethoff, 18, Deputy General Counsel. Today, we filed our Form 10 Q. In addition, we posted our earnings release and financial summary slide deck 18. On our new Investor Relations website at microsoft.com/investor. The slide deck is intended to follow the flow of our eighteen. And provides a reconciliation of differences between GAAP and non GAAP financial measures as well as a summary of segment reporting changes to historical results. 18. As was the case last quarter, we will post today's prepared remarks to our website immediately following the call until the complete 18. Today's call will be webcast live and recorded. If you ask a question, 18. You can replay the call and view the transcript 18. At the Microsoft Investor Relations website until October 28, 2011. This conference call is protected by copyright law and international treaties, unauthorized 18. Production or distribution of this call or any portion of it without the expressed written permission of Microsoft may result in civil 18. Today, we will be making statements during this call that are forward looking. These statements are based on current 18. Actual results could materially differ because of factors discussed in today's earnings press release, 18. In the comments made during this conference call and in the Risk Factors section of our Form 10 ks, Form 10 Q 18 and other reports and filings with the Securities and Exchange Commission. We do not undertake any duty to update any forward looking statement. Okay. And with that, I'll turn Thanks, Bill. Good afternoon, everyone. I'm pleased to be able to share with you our excellent results for the Q1, which reflect the ongoing strength 18. And breadth of our product portfolio. Demand from both businesses and consumers drove healthy revenue growth. We delivered record 18. 1st quarter revenue, operating income and earnings per share. We continue to control costs, while prioritizing our investments into the highest 18. Welcome to the Microsoft First Quarter Fiscal Year twenty eighteen. As we discussed at our Analyst Meeting in July, we have 8 core focus areas that we feel have The greatest opportunity to drive shareholder value. This quarter, we had exceptional momentum across these focus areas and I want to start today's call by giving you some important highlights. 18. 1st, Microsoft Business Desktop is thriving with enterprises and small and medium sized businesses investing in our products 18. Not only are companies adopting Windows 7 and Office 2010 at historically high rates, they are also investing in our Office 18 Productivity Platform, including SharePoint, Exchange, Dynamics CRM and Link, the newly rebranded Office Communications Server, 18, all of which grew double digits this quarter. Server and database businesses had strong momentum as our data center 18. And cloud offerings remain a top priority for our customers as they continue to adopt the Microsoft platform. 18. Windows Azure had strong subscription growth and we announced a number of platform enhancements this morning at our 18. As I mentioned at the beginning of the call, consumer demand for our products continue 18. In terms of our core focus areas, Xbox momentum continued with our console outselling 18. Every competing console in the U. S. For the 4th consecutive month. Bing used hit an all time high with almost double the number of queries 18. And consumers continue to show their strong preference for Windows 7 and Office 2010. 11. Customer satisfaction across our products remains at record high levels. 18. We also made exciting progress in the mobile space with the recent launch of Windows Phone 7 in Europe and Asia and the upcoming November 8 18 Launch in the U. S. So in summary, I'm very pleased with our performance this quarter. We executed well in all of our core focus areas and we're off to a good start eighteen. With that, I'll hand it back to Bill to provide more details on the quarter's results. Thanks, Peter. 18. I'll start today by noting that all of my comments are adjusted for the $1,500,000,000 of revenue, which was deferred 18. As you probably recall, this deferral was related to the Windows 7 upgrade 18. And Windows 7 licenses sold in advance of general availability in the Q1 of last year. We've reconciled this non GAAP 18. Thank you, Steve. Thank you, Steve. Thank you, Steve. Thank you, Steve. Good afternoon, everyone. 18. Okay. Now to our results. We started the fiscal year with great financial 18. Total revenue for the company was up 13% to $16,200,000,000 18. Operating income and EPS grew 20% 19%, respectively, again outpacing revenue growth. 18. Bookings for the company were up an outstanding 24% this quarter. Bookings growth over the last three quarters was 18. The highest in the last 3 years. Operating cash flow passed $8,000,000,000 for the first time ever 18. And was up 34%. A number of the demand patterns and trends we saw in the second half of our fiscal year twenty 18. Sustained through the Q1 of 2011. In the Q1, consumer demand for Office 2010 and Xbox were outstanding, 18. And we're pleased with the continued adoption and growth of Windows 7 and Bing. Sales to small and medium businesses were exceptionally 18. With revenue up over 30%. This growth was partially due to a greater level of partner engagement as we had an increase of over 18% in the number of partners selling Microsoft products around the world. We also saw strengthening trends in the Enterprise 18. Despite what is typically a seasonally weak quarter, our compelling product portfolio across Windows, Server and Tools and the Microsoft Business 18. Unearned revenue at the end of the quarter was $13,900,000,000 18. Due to the strength in enterprise agreements, the contracted not billed balance ended the quarter over $16,000,000,000 18. 18. Growth in the U. S. And Europe remained stable and healthy. We see 18 customers of all sizes embracing cloud services from Microsoft. Organizations are leveraging our commercial and educational online 18. To run their businesses and institutions, while consumers are increasingly using services like Xbox Live, Windows Live 18. Microsoft has significant cloud momentum and we are leading the industry through this transformation. Turning to the PC 18. Turning to the PC market. We estimate PCs grew between 9% and 11% in the 1st quarter. 18. Consumer PCs grew single digits, while the business PCs grew mid teens as the business hardware refresh remained strong. 18. From a geographic perspective, we estimate emerging market PCs grew over 3 times the rate of mature markets. Regarding net 18. We have seen consumers shift from buying netbooks to low end notebooks and we have not seen a material shift away 18. From low end PCs due to tablets in the market. Instead, we've predominantly seen consumers increase their number of devices and their usage scenarios. Going forward, 18. We see a strong pipeline of innovation from our partners for new Windows form factors. With that PC backdrop, 18. I'll move on to the results for the Windows and Windows Live division, which grew 10%. Windows 7 drove the 4th consecutive quarter of 18. Double digit revenue growth for the division. In the Q1, Windows OEM revenue, which represents approximately 18. 75% of the Windows and Windows Live division was up 11%. In our earnings slide deck, we provide the usual bridge from 18. Usual revenue bridge to market, but in summary, the overall dynamics of the market were as expected with strength in business PCs 18 and Emerging Markets. Now let's move to server and tools, which posted a great quarter with 12% revenue growth. 11. We estimate the underlying server hardware market grew mid teens. Non annuity revenue grew approximately 15% with Windows Server 18. Multi year licensing revenue growth was roughly 10% and Enterprise Services grew 9%. 18. At the Financial Analyst Meeting in July, we discussed the assets and momentum of our server and tools portfolio. Let me provide some additional context 18. As Peter mentioned, our data center and cloud offerings are top priority for businesses. 18. We estimate Windows Server usage share grew 1.5 points, while at the same time Windows Server premium mix grew 4 18. System Center revenue growth grew over 20% and within that revenue 18. Our virtualization share continues to grow as IDC 18 Reports Hyper V Share of Newly Virtualized Hosts Doubled Over the Past Year TO 16.5%. 18. Windows Azure is gaining traction and has grown subscriptions 40% sequentially. This morning at PDC, we announced a number of platform enhancements, 18, as Peter mentioned. These enhancements will help customers build new applications and migrate existing applications to the cloud and allow developers 18. Next, I'll move 18. To the Online Services division, which grew 8%. The Online Advertising component of the division grew 13%, primarily driven by our search business, which again outperformed the market leader. Yesterday, Bing reached 18 milestone with the Yahoo! Partnership. Through diligent efforts on behalf of both companies, Bing is now 18. Yahoo! Algorithmic and paid search results in the U. S. And Canada. 18. Turning to the Microsoft Business division, where revenue grew 14%. In the 4th quarter, I The market's reception to Office 2010 has been phenomenal and the Q1 was no different. Consumer revenue grew 26% 18. Welcome to the Microsoft First Quarter Fiscal Year 20 18. In addition, our free Office web app now have more than 20,000,000 users since our June launch. 11. The business portion of MBD grew 11% with the non annuity sales of Office 2010 up almost 50%. Eighteen. We've seen strong demand from small and medium customers and PC attach has rebounded from the year ago levels. 18. The multi year licensing portion of the business grew about 5%. We've spoken with you about the Office productivity 18. Which includes Office, SharePoint, Exchange, Dynamics CRM and Link and we've seen strong momentum and renewal rates 18. Let me give you some of the underlying product momentum in NBD. 18. Link grew 25% and the new version is expected to be available in our 2nd fiscal quarter. 11. Dynamic CRM, which just released a new beta this quarter grew healthy double digits. Sales of Exchange 18. And SharePoint, which are each $1,000,000,000 plus businesses also grew healthy double digits. 18. Enterprises are adopting the entire business productivity infrastructure. They now have unparalleled choice when deploying their applications in their own data center 18. During the quarter, we announced a number of significant cloud wins, including the City of New York last 18. The number of business customers licensing our cloud services has more than tripled in the last year. 18. In education, we now have over 10,000 schools and 11,000,000 students signed up for our live edu service. 11. On October 19, we announced the next generation of our cloud productivity service Office 365. 18. Office 365 brings together LINC, SharePoint, Exchange and Office Professional Plus 18. Desktop Software in an Always Up to Date Cloud Service and is designed to meet the needs of organizations of all types and sizes. 18. From a business model perspective, Office 365 creates new profit growth opportunities for us and our partners and enables new scenarios that weren't viable in the past. 18. With Office 365, we can reach more people, we will sell more to each customer and we will increase customer satisfaction. 11. Office 365 will be available worldwide in calendar 2011. 18. Okay. Let's move on to the Entertainment and Devices division, which grew 27%, reflecting higher Xbox 360 platform revenue. 11. We sold 2,800,000 consoles this quarter, a unit increase of 38%. In the U. S, 18. The new Xbox 360 console has outsold all other platforms since its introduction, resulting in record 18. Halo Reach also had a solid launch this quarter, reaching approximately $350,000,000 in revenue. 18. The halo effect extended to Xbox Live with continued strong membership growth this quarter. 18. Windows Phone 7 launched last week in Europe and Asia and we eagerly anticipate the introduction in the U. 18. Now let me cover the remainder of the income statement. Cost of goods sold increased 10 18. 18. Expenses were $5,900,000,000 in the quarter, an increase of 6%. In the Q1, we repurchased $4,000,000,000 of shares, 18. Returned $1,400,000,000 through dividends and increased our dividend rate 23%. 18. So in summary, we're off to a great financial start for the year with 24% bookings growth. We've seen strong business spending across Windows, 18. And with that, I'll hand it back to Peter, eighteen. And with that, I'll hand it back to Peter, who's going to continue to discuss our business outlook. Great. 18. Thanks, Bill. For the remainder of the call, I'll discuss our expectations for the Q2 and remainder of fiscal 2011. 18. According to many recent surveys, enterprise IT spend should continue to grow for the remainder of the fiscal year. With the depth and breadth of our offerings, 18. We are well positioned to grow our share of the IT spending market. We expect business PC and server hardware purchasing to remain a high priority for most businesses. 18. The business PC refresh cycle should continue through at least the remainder of this fiscal year. As was the case 18. This quarter, we expect business PC growth to outpace consumer PC growth and emerging market growth to outpace developed market growth. 18. We are confident that tablets will expand the PC market and we're enthusiastic about our opportunity along with our partners 18. To additional form factors and new usage scenarios. Windows will continue to provide the choice and value that customers want 18. With that backdrop, I'll now turn to segment expectations. Windows division revenue should grow roughly in line with 18. 18. For the Q2 of fiscal year 2010, you should exclude $1,700,000,000 of revenue related to the tech nineteen and $600,000,000 of revenue related to the launch spike. For the full year, you should exclude $300,000,000 18 $700,000,000 respectively related to these events. Moving on to server and tools. For Q2 and the full year, 18. We expect non annuity revenue, approximately 30% of the total, to generally track with the hardware market. Multi year licensing revenue, 18. Approximately 50% of the total should grow high single digits for the 2nd quarter and low double digits for the full fiscal year. 18 Services, which is the remaining 20%, should grow mid single digits for both the Q2 and the full fiscal year. 18. Turning to expectations for the Microsoft Business division. Consumer and business non annuity revenue, approximately 40% of the division's total revenue, 18. We also expect revenue associated with multiyear 18. Representing 60% of total revenue to grow mid to high single digits for the 2nd quarter and the fiscal year 18. As we slowly start to recognize the higher growth billings going on to the balance sheet. When updating your models, you should remember that next 18. In addition to the framework I just provided, we will also recognize approximately $220,000,000 of deferred revenue related to 18. For Q2 and the full fiscal year, we expect 18. The 11. Majority of Yahoo! Related revenue will be recognized net traffic acquisition costs. We expect the benefits of the integration to occur gradually 18. And finally, in the Entertainment and Devices division, we're very excited about the launch of Windows Phone 7 18. And we anticipate that Connect will be the gift this holiday season. Considering the momentum and high level of consumer interest in our offerings, we expect 18. This division's revenue to grow roughly 30% for the 2nd quarter and in the mid-20s for the full fiscal year. Pushing the cost of goods sold expectations for the company, the biggest factor impacting COGS next quarter will be the expected and significant increase in hardware sales 18 due to the upcoming launch of Kinect. Obviously, Xbox console and Kinect have a higher COGS profile relative to revenue than the rest of our business eighteen. Turning to operating expenses. We continue to prioritize our investments and remain diligent on cost control. 18. We are reconfirming our guidance of $26,900,000,000 to $27,300,000,000 for the full fiscal year. 18. We expect the low interest rate environment we experienced in the Q1 to continue through the Q2 and the fiscal year and for investment income to be fairly 18. We continue to expect capital expenditures for fiscal year 2011 to be about $2,500,000,000 18. We expect our effective tax rate to be 23% to 24% for the 2nd quarter and the remainder of the fiscal year. 18. Turning to the balance sheet. At the end of the second quarter, we expect unearned revenue to roughly follow historic seasonal patterns, excluding the 2 18. So with that color for Q2 and the rest of our fiscal year, I want to close by saying that we are 18. I'm extremely pleased with the results we delivered this quarter. We executed well in all of our core focus areas. 18. Products and services we've brought to market over the past year are being embraced by our customers. And as a result, our product portfolio is as strong as it has ever been. 18. This combined with our continued prioritization of investments into the highest growth opportunities will help us drive long term revenue 18 Earnings Per Share Growth. With that, let's take some questions. Phil? Thanks, Peter. We want to get 18. Barb, can you please go ahead and repeat your instructions? 18. Thank you. We will now begin the question and answer session. Eighteen. The first question comes from Adam Holt with Morgan Stanley. 18. Thank you and congratulations on a really good start to the year. My question is about Office. Obviously, also a very good start for 20 18. As you look back at 2,007 business growth exceeded 20% for a number of quarters. As you think about the internals in terms of penetration 18. And duration for this cycle, what are your early thoughts about how it could compare it? And where are you seeing evidence on success around some of the bundling that you talked about? 18. Yes. Thanks, Adam. At a high level, certainly, I'd point you to the guidance framework that we just talked about and what we expect relative to the business PC market. And obviously, 18. Our business hardware refresh is a great underlying driver for that business as well as the excitement around the product. 18. And in terms of Office, I think the thing that's most encouraging for me is the breadth of the strength around it across all customer segments, whether that 18. In terms of the integration story, Bill touched on the strong growth across all of those businesses. I think you're really starting to see that resonate very well with customers. And in fact, as we had anticipated when we were talking about anticipating 2010, off of 2010, 18. That was going to be a key part of the story. And I think we're starting to see that play out early days, which I think can sustain for a while. Operator, next question please. Eighteen. And next is Heather Bellini with ISI Group. Hi, thank you. Peter, I was wondering, you mentioned that the Enterprise 7 and Windows 7 Enterprise Upgrade Cycle Would Last at Least Through the End of Fiscal 2011. And I guess I'm just wondering if you could share with us 18. How the upgrade cycle itself is tracking versus your expectations from a few quarters ago? Thank you. 18. Yes. I would say 2 things. 1, just in terms of enterprises' desire to upgrade, 18. Very strong, sort of high levels. I think what we're seeing is people actually doing their deployments a little bit faster than I think we expected and we've seen 18. In terms of the overall business, obviously, we're seeing enterprise and businesses refresh their hardware, which is 18. Obviously, a great thing in terms of the Windows 7 business. Operator, next question please. And next is Walter Pritchard with Citi. Hi. Eighteen. Bill, Peter, I'm wondering if you could talk a bit about just enterprise agreements in general. And we're certainly not back to a normal economic environment, but your performance there, especially the improvements over the last 18. Several quarters here seem to suggest that maybe you are getting back to kind of normal behavior from customers despite headcount being pressured. I'm just wondering if you could talk to us about 18. What you're seeing as the drivers of growth in that part of the business more generally? Yes. Thanks, Walter. I think you're seeing the confluence of several things. Obviously, one is just macroeconomics 18. Business is investing in IT again. And I think the other is our product portfolio. 18. And so the combination of those two things has gotten enterprises really wanting to invest both in their IT 18 Infrastructure and in our portfolio of products. And so as we had hoped over the course of the last year, we thought those two things might come together. 18. The last thing I'll say is the accelerated interest in the cloud. And so when you add on top of it, where we've come in terms of our cloud offerings and what that means for 18. Enterprises, they think about investing for the long term. They want to invest with somebody who can make the transition from their on premise infrastructure 18. And I think you're seeing that as well. And so the conversations that we're having always include our new product portfolio as well as our eighteen. And I think that taking into account the better macroeconomic environment has all come together to really drive a better environment. Operator, next question please. Eighteen. And this is Sarah Friar with Goldman Sachs. Great. Thanks for taking my call my question guys. Peter, on the cost side, you had tremendous operating 18 Margins This Quarter. As you look forward, you maintain the cost goals for the full year. Is that an anticipation of what's coming around the Windows Phone launch 18 Connect or are there ways to continue to see you be a lot more efficient on the cost side over the next couple of quarters? Yes. Thanks, Sarah. No, as you know, we're always looking at ways to 18. Looking at ways to be as efficient as we can on the cost. And right now, we're executing against the plan. We feel very good about our plan that we've been talking about over the last 18. Couple of quarters. And Q1 was good and we continue to execute against that plan. And obviously in 18. Q2, we do have some launches coming up and that was always in our plan and those starting off are going very well. Operator, next question please. 19. This is Brent Thill with UBS. Thanks. Peter, if you could drill one level deeper into the corporate demand and maybe give us a sense of what inning you think we're in, in terms of the corporate 11 Grid. First baseball reference. Thanks, Brent. I won't take Go Giants. 18. He doesn't want to, but I do. In our guidance, we talked about the rest of this year. I think we 18. See how that plays out. That's sort of where we have visibility and what we're talking about. But certainly over the last couple of quarters, looking forward over the next couple of quarters and 18. Talking to customers and what they're looking to invest in, clearly, a priority is investing in refreshing their hardware and the related Microsoft 18. Operator, next question please. And next is Phil Winslow with Credit Suisse. Hi guys. Great quarter. Just 18. I want to focus in on the server and tools division for a minute. Peter, what are your OEM partners telling you about just where we stand 18. And the server refresh cycle and how much do they see these sort of these high growth rates that we're seeing in server shipments either continuing or not continuing 18. And the next year. Thanks. Yes. No, thanks. Similar to PCs, I think it's a similar dynamic. The businesses are 18. Investing broadly in their infrastructure, whether that's PCs or servers. In our outlook, we talked about how we expect that to continue for the rest of this fiscal year. 18. So it's very similar to what we just talked about in terms of the PC refresh. Operator, next question please. Next 18. This is Katharine Egbert with Jefferies. Hi, good afternoon. If I do some math, I come up with about 40% of your revenue coming from all consumer sources and about 60% business. And it looks like the consumer revenue is about flat year on year and the business revenues growing high teens. Is that accurate? 18. Well, we look at it that way. Yes. It's hard to answer that question. I don't know exactly your math. I will point out a couple of key highlights on the eighteen. If you look at the Entertainment and Devices, the Xbox growth 27%. That's something that we We feel really good about and gives us great momentum heading into the holiday with Connect. And the same thing with our search revenue outgrowing the market. 18. So those are sort of the key highlights. Consumer and Office was up 26%. Correct. So we actually feel really good about the consumer growth. It's hard to answer the Specific question with that. And we feel good about the business growth. So it was a good quarter for both. Yes. Okay. Thank you. Thanks. Next question, please. 18. And next is Kash Rangan with Merrill Lynch. Hi. Thank you very much. It's good to see the cash flow and the operating margin 18. I just want to answer this from a qualitative standpoint. Incrementally, relative to the last two quarters, 18. What's your confidence level in your growth rate? I just noticed some of the forward looking indicators. Your business tends to lag broader spending because you have this annuity model for the most part. Look at the 18. Unbilled portion and debt set at record high. Your year renewals are you characterized better than before. The deferred is also given nicely. What is 18. Your incremental confidence with respect to your revenue growth rate considering that you have your expenses tied up, I would assume that there's a lot of operating leverage for that 18. Talk to us about your confidence in your revenue growth outlook. Thanks. Great. Yes, obviously, we feel pretty good. We had 18. Such strong performance in the business side and that flowed through. If you look at our outlook on the annuity side to your point, 18. We've slightly increased our annuity revenue outlook in MDD and STB, which reflects the strength in the billings that we've seen. 18. As you pointed out, it takes time for that to flow through the income statement and it will throughout the rest of the year. Operator, next question please. And next is John Nafuchi with JPMorgan Chase. Thank you. Peter, my question has to do with PC 18. PC market PC sales, unit sales, you and your Windows OEM revenue bridge, which is always very helpful, you start off in 18. You see market of 10% growth, but industry analysts are coming out and I know you're not doing their work, but it's actually quite different from what we've seen 18. Out there from industry analysts by about 2.5% in this quarter, which is a bigger range than we usually see. Just wondering, 18. Can you just help us out a little bit with that because those things come out throughout the quarter and we take a look at 18. We realize that a lot of your well, at least the Windows business and also MBT and with Office is driven by that 18. Certainly significantly driven by that. Any comments on that, the difference? Yes. Actually, John, I'll take that. So IDC came out and said 10% and Gartner said 8. 18. So our range of 9% to 11% was slightly higher than partners and IDCs was in the mid range. 18. So we feel like our analysis of the PC market, obviously, we look at those data points as well as others was completely in line. So happy to talk to you about it 18. And the next question 18 comes from Jason Maynard with Wells Fargo. Hey, guys. I just had a question on Windows 7. The premium mix shift was pretty good this quarter. I'm just curious, in light of 18. The commentary about the enterprise adoption cycle, is it fair to say you anticipate sort of similar levels playing out there in terms of how that 18. Yes. Generally speaking, the biggest factor in premium mix is going to be the business mix. And 18. As we talked about, we expected those dynamics to continue for the rest of this year. Operator, next question please. And next is Brad Reback with Oppenheimer. 11. Hey, guys. How are you? Hey. So Bill, I think you had highlighted earlier in the call that the big win with the Office 865 product at New York. It was a fairly competitive bid, it looks like. Could you guys maybe talk to what the economics of that look 18. From a profitability standpoint over the life of that contract. Clearly, a lot of concern as people move to the cloud that that could negatively impact the P and L. 18. So maybe you could talk to a real world example. Yes. No, happy to do that. It's a great question. Bill touched a little bit on the business model. We talked about this a little bit at our analyst meeting. These cloud wins and these cloud deals, it provides totally new 18. Economic opportunity for us. These are scenarios that we're not in today. In many cases, they're customers. We don't have as customers today. In some cases, it's revenue 18. We may have some of the customers that we're not getting. City in New York is a perfect example. We have others like Starbucks and others 18. Where we're addressing totally new scenarios. Andrew is a great example of that, which really it increases our penetration in that market. 18. Similarly, we've talked about how in the mid market, we can really increase our penetration with services like this. So that's sort of our business model, how it creates economic profit for eighteen. Operator, next question please. And next is Edward Maguire with CLSA. Yes. Good afternoon. Looking at 18. The double digit growth in your business division products, could you talk about what's driving that and how closely 18. That growth may be linked to the Windows 7 activity? Yes. It's not really tied to the Windows 7 activity. It's more a function of the product cycle with Office 2010 and all the related products like that go with it like SharePoint and Exchange and Link. 18. And as we touched on briefly before, the confluence of the macroeconomic environment 18. And Enterprise is investing in their infrastructure. They're seeing the value that you get, the increased productivity and the cost savings that you get. And that's what's really driving 18. Interest in those products and new versions of those products and just introduce capabilities that enterprises really 18. Thanks, Ed. Operator, we'll take one more question, please. And our last question comes from Gregg Moskowitz with Cowen and Company. 18. Okay. Thanks very much. Good afternoon, guys. Peter, you mentioned that the Windows Server premium mix was up 4 points. So I think you're now at 29%. 18. And I believe that at least a few quarters back Microsoft had suggested that it would be difficult to get this above 30%. Is that still kind of the feeling we should be thinking about? Or do you think Given this momentum that you could drive the premium mix higher than that. Well, the first thing I'd say is the premium mix is over 20 We haven't given an exact number on that. It's probably I think it's best to continue to track it and not sort of set a ceiling or an expectation for it. 18. Okay. So that will wrap up our Q and A portion of today's earnings call. 18. As many of you know, today is a busy day for us here in Redmond as we have PDC going on here. I'd encourage you if you haven't to listen to the replays 18. We also look forward to seeing many of you at a number of call conferences we'll be 18. For those of you who are unable to attend in person, you will be able to follow our comments at microsoft.com/investor. 18. And that concludes today's