Microsoft 2004 Annual Report Download - page 2

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PAGE 2
To our shareholders, customers, partners and employees:
For Microsoft, fiscal 2004 was a great year, marked by strong growth and development of exciting new technologies. All of
our businesses grew during the year, increasing total revenue by $4.65 billion, or 14 percent, to $36.8 billion. Profit
margins from continuing operations improved, particularly in our emerging businesses.
In the past year we delivered amazing new products and services, including Office System 2003, new versions of
Windows XP for Media Center and for Tablet PCs, Exchange Server 2003, Windows Small Business Server 2003,
BizTalk Server 2004, Speech Server 2004, MSN Messenger 6.2, Windows CE 5.0, and several new business solutions
for small and mid-market customers. We made progress against some of the biggest problems facing customers today,
such as the costly epidemic of junk e-mail, and security threats from attacks over the Internet. Our progress on security is
reflected in the important advances in Windows XP Service Pack 2, which enables safer Web browsing, e-mailing, and
instant messaging.
We also made major progress in reducing our legal risks and strengthening relationships within our industry and with
governments. Building on this progress, we are confident that Microsoft will continue to grow and create long-term value
for shareholders.
Accordingly, the board of directors has approved a plan to return cash to investors on an unprecedented scale. During the
next four years, the company is on track to return as much as $75 billion to shareholders, by increasing the regular
dividend, expanding our stock buyback program, and declaring a special dividend of $3 per share, subject to shareholder
approval as described in the proxy statement. We will continue to have ample resources to pursue the enormous growth
opportunities that we see ahead. All of us at Microsoft are intensely focused on realizing these opportunities by continuing
to deliver integrated, cutting-edge technology, and through operational excellence.
Integrated Innovation
Microsoft was built on innovation, and our future depends on it. We are in an extraordinary position to deliver even greater
value to customers through a broad set of technologies, designed to complement each other and many third-party
products and services. This is what we mean by integrated innovation, which is key to our business strategy.
To drive innovation, Microsoft has a long-term commitment to research and development. Our investment to date has
brought about many of the successful products we offer today, and has built an increasingly valuable store of intellectual
property. In fiscal 2004, we applied for more than 2,000 patents on some of our recent innovations. During the coming
year, we plan to file for another 3,000 patents, which will make us one of the largest patent filers in the world. Our
innovations are available for broad use in others’ products through our patent licensing programs.
Security. A key focus of our innovation is security. Beyond the advances in Windows XP SP2, we are developing
advanced technologies that will help isolate computers from Internet attacks and make them more resilient when they are
attacked. We are making it easier for customers to keep their systems updated with our latest, most secure software.
We are also developing more secure techniques for authenticating network users and controlling their access. And we
have implemented new software-development processes, tools, and training to promote engineering excellence and help
ensure that new software is more secure by design.
In addition, we are collaborating with other industry leaders to develop more effective community responses to security
threats, and working closely with governments around the world to bring cyber-criminals to justice. Through this broad,
multi-pronged approach, our goal is to help bring significant improvements in security, and help preserve the benefits of
technology for everyone.
Our innovation is also focused on exciting market opportunities across our businesses, which we believe hold great
potential for growth over the next several years.
PC Market Growth. Today there are 600 million personal computers around the world; by 2010, we estimate the
number will grow to one billion. Much of this growth will come from new generations of PCs with enhanced capabilities,
such as the Media Center and Tablet PCs that Microsoft has pioneered. We are hard at work on Longhorn—the next
generation of Windows—which will lead to exciting new innovations in software, hardware, and services, delivering
experiences that should broaden PC adoption and accelerate upgrades.