Thank you, Satya, and good afternoon, everyone.
First, as a reminder, my comments across our results and outlook include the impact from GitHub, inclusive of purchase accounting, integration and transaction-related expenses.
This quarter, revenue was $32.5 billion, up 12% and 13% in constant currency. Gross margin dollars increased 12%. Operating income increased 18%, and earnings per share was $1.10, increasing 15% and 14% in constant currency when adjusting for the net charges related to TCJA. Strong execution and continued customer demand for our hybrid cloud offerings drove another quarter of double-digit top and bottom line growth.
We continued to benefit from favorable secular trends and IT spending conditions. From a geographic perspective, our performance was in line with macroeconomic trends with strength across the U.S., Western Europe and the U.K. partially offset by weaker performance in Central and Eastern Europe and the Middle East and Africa. In our commercial business, annuity mix grew 3 points year-over-year to 89%. Commercial unearned revenue was $25.3 billion, growing 20%, slightly above our expectations. And commercial bookings were strong, growing 18% and 22% in constant currency driven by solid renewal execution and an increase in the number of larger, longer-term Azure contracts.
As a reminder, strong performance in larger long-term Azure contracts, Azure consumption overages and pay-as-you-go contracts will drive bookings growth and in-period revenue but will have a limited impact on unearned revenue. Commercial cloud revenue was $9 billion, growing 48% and 47% in constant currency. Commercial cloud gross margin percentage increased 5 points year-over-year to 62% driven by significant improvement in Azure gross margin.
Our company gross margin percentage was 62%, flat year-over-year as improving cloud margins were offset by sales mix shift to commercial cloud and Surface hardware. The U.S. dollar was a bit stronger than anticipated, which resulted in a slightly greater impact to our results. FX reduced revenue, COGS and operating expense growth by less than 1 point. Operating expenses grew 7%, slightly lower than expectation as some marketing spend shifted to Q3. We again expanded operating margins as a result of focused investment, solid execution and improving gross margins in key product areas.
Now to segment results. Revenue from Productivity and Business Processes was $10.1 billion, increasing 13% driven by Office 365 Commercial, LinkedIn and Dynamics 365. Office Commercial revenue grew 11%. Office 365 Commercial revenue increased 34% and 33% in constant currency driven by seat growth of 27% and ARPU expansion from continued customer migration to higher value E3 and E5 offerings. We saw installed base growth across all workloads and customer segments. Office Consumer revenue grew 1% and 2% in constant currency, below our expectation.
As discussed on our last earnings call, Q2 revenue growth was impacted by channel inventories normalizing after the prelaunch builds in Q1 but was further negatively impacted by a smaller-than-expected consumer PC market and execution challenges through the quarter. Office 365 Consumer subscribers grew to 33.3 million, a sequential slowdown primarily due to changes made in how Office 365 is sold in Japan.
Our Dynamics business grew 17% driven by Dynamics 365 revenue growth of 51% and 50% in constant currency.
This quarter, more than 9 out of every 10 new Dynamics CRM customers chose our cloud offering. LinkedIn revenue increased 29% and 30% in constant currency with continued strong execution across all businesses. LinkedIn sessions grew 30% as engagement once again reached record levels. Segment gross margin dollars increased 11%, and gross margin percentage declined slightly year-over-year as increased cloud mix offset the benefit from improvements in LinkedIn and Office 365 margins. Operating expenses increased 3% and 4% in constant currency as we continued to invest in LinkedIn and cloud engineering. Operating income increased 20% and 19% in constant currency.
Next, the Intelligent Cloud segment, which now includes GitHub. Revenue was $9.4 billion, increasing 20% and 21% in constant currency, ahead of expectations, driven by continued strength in our hybrid solutions. Server products and cloud services revenue increased 24%. Azure revenue increased 76% with strong growth from both the consumption and per user base businesses. In our on-premises server business, continued customer demand for flexible hybrid solutions and our premium offerings drove growth of 3% and 4% in constant currency. Enterprise Services revenue increased 6% and 7% in constant currency, driven by growth in premier support services and Microsoft Consulting Services. Segment gross margin dollars increased 20%. Gross margin percentage was relatively unchanged as revenue mix to Azure IaaS and PaaS was offset by material improvement in the Azure gross margin percentage. Operating expenses increased 26% with continued investment in cloud and AI engineering as well as commercial sales capacity and the addition of GitHub. Operating income grew 16% and 15% in constant currency.
Now to the results for More Personal Computing segment. Revenue was $13 billion, increasing 7%. Results in our Windows OEM business were lower than expected, partially offset by strong Surface results. In Windows, the overall PC market was smaller than we expected primarily due to the timing of chip supply to our OEM partners, which constrained an otherwise healthy PC ecosystem and negatively impacted both OEM Pro and non-Pro revenue growth. Windows OEM Pro revenue declined 2%, roughly in line with the commercial PC market. OEM non-Pro revenue declined 11%, below the market with continued pressure in the entry-level category. Inventory levels ended the quarter below the normal range. Windows Commercial products and cloud services grew 13% and 14% in constant currency with continued customer adoption of our premium offerings. Windows 10 deployments across new and existing devices remained strong. Gaming revenue grew 8% and 9% in constant currency. Xbox software and services revenue increased 31% and 32% in constant currency, primarily driven by continued strength from a third-party title.
Additionally, strong subscriber growth across Xbox Live and Game Pass helped to offset lower-than-expected performance from other third-party titles on the platform. Xbox hardware performed better than expected but declined year-over-year given the holiday launch of the Xbox One X a year ago. In Surface, revenue increased 39% and 41% in constant currency to nearly $1.9 billion, ahead of our expectations, driven by strong growth across both our consumer and commercial segments. Search revenue ex TAC increased 14%, driven by Bing rate growth and increased volume in U.S. and international markets. Segment gross margin dollars increased 6% and 7% in constant currency, and gross margin percentage decreased due to sales mix to our lower-margin Surface and gaming businesses. Operating expenses declined 4%.
As a result, operating income increased 18% and 19% in constant currency.
Now back to total company results. Capital expenditures, including finance leases, were down sequentially to $3.9 billion, lower than originally planned mainly due to quarter-to-quarter variability and the timing of cloud infrastructure build-out. Cash paid for plant, property and equipment was $3.7 billion. Cash flow from operations increased 13% year-over-year driven by strong cloud billings and collections. Free cash flow was $5.2 billion and decreased 2% year-over-year, reflecting the timing of higher cash payments for plant, property and equipment. Other income was $127 million, higher than anticipated, driven by interest income and investment gains partially offset by interest expense and net losses on foreign currency remeasurement.
Our non-GAAP effective tax rate was slightly above 17%, in line with expectations. And finally, we returned $9.6 billion to shareholders through share repurchases and dividends, an increase of 91%.
Our Q2 share repurchase was $6.1 billion, higher than our normal quarterly pace and aligned to our commitment of incremental buyback to fully offset stock consideration issued in the GitHub transaction by the end of the fiscal year.
Now let's move to the outlook.
For Q3, first, FX.
With the stronger U.S. dollar and assuming the current rates remain stable, we now expect FX to decrease revenue and operating expense growth by approximately 2 points and decrease COGS growth by approximately 1 point.
With the segments, we anticipate about 2 points of negative FX impact on revenue growth and Productivity and Business Processes and Intelligent Cloud and 1 point in More Personal Computing.
Second, continued strong customer demand, healthy bookings growth and increasing revenue annuity mix should drive another solid quarter in our Commercial business. Commercial unearned revenue is expected to decline approximately 2% to 3%, in line sequentially with historic trends.
We expect commercial cloud gross margin percentage to continue to improve year-over-year as material improvement in Azure gross margin will again be partially offset by the mix of revenue toward Azure consumption-based services.
We expect a sequential dollar increase in capital expenditures as we continue to invest to support increasing demand.
Now to segment guidance. In Productivity and Business Processes, we expect revenue between $9.9 billion and $10.1 billion, driven by double-digit growth in Office Commercial and Dynamics as well as healthy LinkedIn growth on a strong prior year comparable.
We expect Office Consumer revenue growth to continue to be in the low single digits as growth in Office 365 will be partially offset by the continuation of the consumer PC market headwinds.
For Intelligent Cloud, we expect revenue between $9.15 billion and $9.35 billion, with our hybrid demand continuing to drive strong growth in server products and cloud services. Azure growth will continue to reflect the balance between strong growth in our consumption-based businesses and moderating growth in our per-user business. In More Personal Computing, we expect revenue between $10.35 billion and $10.65 billion, with a shift in revenue mix to our Surface and gaming businesses. In Windows overall, OEM revenue growth should be in the low single digits as we anticipate continued market demand -- market impact from constrained chip supply in Q3. In Surface, continued momentum from Surface Pro 6, Surface Laptop 2 and Surface Go will drive another strong quarter of over 20% growth for Surface. In search ex TAC, we expect revenue growth similar to Q2. In gaming, we expect revenue growth to be slightly higher than last quarter. Sales mix will shift to software and services where we expect healthy growth.
Now back to overall company guidance.
We expect COGS of $10.35 billion to $10.55 billion and operating expenses of $10.1 billion to $10.2 billion dollars, inclusive of marketing spend that moved from Q2 to Q3. Other income and expense should be approximately $50 million as interest income is partially offset by interest expense. And finally, we expect our Q3 effective tax rate to be in line with the full year rate of 17%.
Now a few comments on our outlook for Q4 and the full fiscal year, which are unchanged from October.
First on FX. In Q4, assuming rates remain stable, we expect FX to decrease revenue growth by approximately 2 points and COGS and operating expense growth by approximately 1 point.
Second, in Q4, we expect continued strong performance in our commercial cloud business; but as a reminder, we also have several challenging comparisons from the prior year, specifically in on-premise server, LinkedIn, Windows OEM and the strength of a third-party title in gaming.
In terms of operating expenses, we continue to expect full year growth of roughly 8%.
We will continue to invest in strategic growth areas like Azure, GitHub, Dynamics, the Power platform, LinkedIn, Teams and gaming content given our significant growth opportunities, competitive advantage and growing momentum. We still expect full year operating margin to be up slightly year-over-year, inclusive of the full GAAP impact of GitHub.
For CapEx, we continue to expect the growth rate for the year to moderate, even as we meet the high demand for our cloud services. We remain committed to an incremental share buyback beyond the normal quarterly pace that will fully offset stock consideration issued in the GitHub transaction by the end of the fiscal year. And finally, we still expect the full year effective tax rate to be roughly 17% with quarterly variability. With that, Mike, let's go to Q&A.