Microsoft 2006 Annual Report Download - page 21

PAGE 20
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR FISCAL YEARS 2006, 2005, AND 2004
OVERVIEW
The following Management’s Discussion and Analysis (“MD&A”) is intended to help the reader understand the results of
operations and financial condition of Microsoft Corporation. MD&A is provided as a supplement to, and should be read in
conjunction with, our financial statements and the accompanying notes to the financial statements (“Notes”).
We develop, manufacture, license, and support a wide range of software products for many computing devices. Our software
products include operating systems for servers, PCs, and intelligent devices; server applications for distributed computing
environments; information worker productivity applications; business solutions applications; and software development tools.
We provide consulting and product support services, and we train and certify system integrators and developers. We sell the
Xbox video game console and games, PC games, and PC peripherals. Online communication and information services are
delivered through our MSN portals and channels around the world.
Our revenue historically has fluctuated quarterly and has generally been the highest in the second quarter of our fiscal year
due to corporate calendar year-end spending trends in our major markets and holiday season spending by consumers. Our
Home and Entertainment segment is particularly subject to seasonality as its products are aimed at the consumer market and
are in highest demand during the holiday shopping season. Typically, Home and Entertainment has generated over 40% of its
yearly segment revenues in our second fiscal quarter. We believe the seasonality of revenue is likely to continue in the future.
We intend to sustain the long-term growth of our businesses through technological innovation, engineering excellence, and a
commitment to delivering high-quality products and services to customers and partners. Recognizing that one of our primary
challenges is to help accelerate worldwide PC adoption and software upgrades, we continue to advance the functionality,
security, and value of Windows operating systems. We also are increasing our focus on emerging markets and reducing the
amount of unlicensed software in those markets. In addition, we continue to develop innovative software applications and
solutions that we believe will enhance the productivity of information workers, improve communication and collaboration in
work groups, aid business intelligence, and streamline processes for small and mid-sized businesses. To sustain the growth of
our Server and Tools business amid competition from other vendors of both proprietary and open source software, our goal is to
deliver products that provide the best platform for network computing – the easiest to deploy and manage and most secure –
with the lowest total cost of ownership.
We continue to invest in research and development in existing and new lines of business, including business solutions,
mobile computing, communication, entertainment, and others that we believe may contribute to our long-term growth. We also
research and develop advanced technologies for future software products. We believe that delivering innovative and high-value
solutions through our integrated platform is the key to meeting customer needs and to our future growth.
We believe that over the last few years we have laid a foundation for long-term growth by delivering innovative products,
creating opportunities for partners, improving customer satisfaction with key audiences, putting some of our most significant
legal cases behind us, and improving our internal business processes. Our focus in fiscal year 2007 is building on this
foundation and executing well in key areas, including continuing to innovate on our integrated software platform, responding
effectively to customer and partner needs, and continuing to focus internally on product excellence, business efficacy, and
accountability across the company.
Key market opportunities include:
• Strengthening core businesses through new product launches, upgrades, making inroads against software piracy, and
extending PC accessibility to new consumers in emerging markets.
• Succeeding in adjacent businesses by offering extensions of our technologies targeted towards specific customer needs
– either as new products or as higher-value versions of existing products.
• Entering new markets as we redefine how people create, deliver, and experience entertainment.
• Delivering software services through online consumer services and services for businesses that enable workers to
collaborate interactively.
Worldwide macroeconomic factors have a strong correlation to business and consumer demand for our software, services,
games and Internet service offerings. We expect a broad continuation in the economic conditions and demand in fiscal year
2007 as compared to fiscal year 2006.