The PC licensing decline was steeper than the fall in a broader category that includes Surface devices. Finance chief Amy Hood expects the pressures to persist through fiscal 2027.
Microsoft’s cloud revenue rose 30% to $63.9 billion in the first quarter of fiscal 2027, while revenue from licensing Windows for new PCs fell 27% year over year, or 28% in constant currency, more than the company expected. These are reported quarterly results; Microsoft labels its financial information unaudited unless otherwise noted.
Chief financial officer Amy Hood attributed the licensing decline to the comparison with last year’s demand ahead of Windows 10’s end of support, reductions in partners’ inventories and weaker PC demand. Hood’s explanation and outlook were quoted by Ars Technica.
The Windows licensing result differs from the broader Windows OEM and devices category, which also includes Microsoft’s Surface devices. Constant-currency figures remove the effect of exchange-rate changes.
| Business | Reported change | Constant-currency change |
|---|---|---|
| Windows OEM licensing | -27% | -28% |
| Windows OEM and devices | -22% | -22% |
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| Azure | 48% | 48% |
Total quarterly revenue was $92.3 billion, with Microsoft Cloud accounting for roughly 70%. Cloud’s gross margin—the share of revenue left after direct costs—was 66%, compared with 68% a year earlier.
Original equipment manufacturers, or OEMs, are the PC makers and system builders that obtain Windows licences to bundle with the computers they sell. Hood said inventory drawdowns by these manufacturers and channel partners were among the reasons Microsoft’s licensing revenue fell 27% year over year, or 28% in constant currency, below expectations.
Windows 10 support ended on 14 October 2025, except for long-term servicing editions or those enrolled in the extended security updates program. Hood’s comparison therefore puts this quarter against the earlier demand associated with that support deadline.
The broader Windows OEM and devices business had already declined in the preceding quarters. Microsoft recast its earlier figures to reflect its fiscal 2027 segment changes.
| Fiscal 2026 quarter | Reported change |
|---|---|
| Second quarter | -1% |
| Third quarter | -2% |
| Fourth quarter | -7% |
Hood expects the trends behind the Windows licensing decline to continue through the rest of fiscal 2027.
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