Microsoft Corporation (MSFT)’s Fiscal Year 2015 Second Quarter Earnings Conference Call Transcript

Page 10 of 15

Brent: Thank you.

 Operator: Our next question comes from Walter Pritchard of Citigroup. Please proceed.

Walter: Thanks, two questions. One on execution it sounded like you listed some issues in Japan and heard about VET from other companies, can you just talk about what you’re doing to address some of the issues and is there any concern about if that may spread beyond what you see in Japan and China?

Amy: Thanks Walter. Is that both your questions? I just want ot make sure I get them.

Walter: No but I just wanted to understand generally. I had one other but it’s the same.

Satya: I’ll just start with talking about China. We have in China currently a set of geopolitical issues that we are working through. We are very committed to china as a market, we have in fact pockets of good growth in china with our cloud doing fairly well but at the same time we’re grounded that in the fact that we need more work to do and we are working through them and as in when that will work out we’ll let you know.

Amy: And I’ll talk a little bit about Japan and Walter to answer your question, I don’t have any concerns that that will expand especially since this is a unique issue beyond Japan. With the Windows end of XP plus the bad VAT increase, I do think as well as some of the macroeconomic environments that it tightens far faster than we had anticipated and Japan in particular, because it’s a model  for us, it is an annuity geography for us so impacts in Japan more directly come to the P&L as opposed to our under CND balances and that’s why this quarter you saw some weakness in commercial licensing but when adjusted for FX and unearned balance and booking felt quite good from a commercial perspective.

Walter: Quick question about the Office 365 commercial, can you talk about the deployment rate there? I know you’ve done a good job of getting them into contracts but how many customers are actually running their email and SharePoint and other products in the cloud versus just having the rights to it?

Amy: Thanks Walter. I think with all products I think about the complete sales cycle and I’m really encouraged by the fact that we’re doing a good job of moving from the initial sales through deployment, through adding on services and back to renewals and I think the importance of that customer life cycle is reshaping how we think about our workloads and our workload health in the cloud. The workload that we’re furthest along on is obviously Exchange and it happens to come also with directory implementation.  We generally think of a fast deployment and adding on workflows and premium work cycles and then, as you might imagine, that provides an interesting environment for us to add on some of the products that Satya mentioned directly in his comments such as EMS or enterprise mobility suite. So I think that there’s always a lag, the actual goal is the commitment that the customer shows to the cloud and them moving them as quickly as we can but also at their own pace through deployment.

Walter: Thank you.

Operator: Thank you, our next question comes from the line of Keith Weiss of Morgan Stanley. Please proceed.

Keith: Thank you guys for taking our question. I just want to dig into Windows OEM ASPs a little bit and try to understand the dynamics between what we see in the marketplace when we look at the industry analysts that we’re looking at, basically sort of flat, slightly down unit growth and the down 13% OEM that revenue growth that you guys are seeing. Some of this makes [inaudible] and some of ASP, I wonder if you can help us on with a little bit color on  in terms of  exactly what that ASP dynamic that’s going on in terms of lower entry level additions, what’s that doing to overall ASP  and what you’re able to extract from the market ?

Page 10 of 15