The hypoxia probably results from decreased surface area for gas transfer.

The decreased single-breath diffusion measurement indicates a significant blockage to gas exchange, either due to an increased tissue barrier to diffusion (pulmonary fibrosis) or decreased available surface area. The steady-state diffusion study (don't worry about the details of this yet) is normal, indicating that the surface area that is present is tranferring gas normally and the problem in this patient probably results from decreased surface area.

                             % of normal value
FEV1                               72%
Vital Capacity                     72%
FEV1/FVC                           1.0
Diffusion capacity
    Single breath                  61%
    Steady-state                  108%
Pulmonary dead space              136%
Dead space/Total lung capacity     43% of TLC (normal <35%)