Microsoft 2007 Annual Report Download - page 19

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PAGE 18
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Client operating income increased reflecting the increase in OEM revenue partially offset by a $224 million
increase in sales and marketing expenses, excluding headcount-related costs, mainly driven by increased
investments in partner marketing and Windows Vista pre-launch programs. Headcount-related costs increased
6%, driven by a 13% increase in headcount primarily associated with Windows Vista and further investments in
our sales and marketing organization, and an increase in salaries and benefits for existing headcount, partially
offset by a decrease in stock-based compensation expense.
Server and Tools
(In millions, except percentages) 2007 2006 2005
Percent
Change 2007
versus 2006
Percent
Change 2006
versus 2005
Revenue $11,175 $9,652 $8,367 16% 15%
Operating income $ 3,900 $3,035 $2,072 29% 46%
Server and Tools offerings consist of server software licenses and client access licenses (“CAL”) for Windows
Server, Microsoft SQL Server, and other server products. It also includes developer tools, training, certification,
Microsoft Press, Premier and Professional product support services, and Microsoft Consulting Services. Server
and Tools concentrates on licensing products, applications, tools, content, and services that make information
technology professionals and developers more productive and efficient. The segment uses multiple channels for
licensing including pre-installed OEM versions, licenses through partners, and licenses directly to end customers.
We sell licenses both as one-time licenses and as multi-year volume licenses.
Fiscal year 2007 compared to fiscal year 2006
Server and server application revenue (including CAL revenue) and developer tools, training, and certification
revenue increased $1.12 billion or 14%. This increase was primarily driven by increased revenue associated with
SQL Server, Windows Server, and Visual Studio. The results reflect broad adoption of Windows Server products,
especially SQL Server which grew over 20%. Consulting, Premier, and Professional product support services
revenue increased $404 million or 24% primarily due to higher demand for Premier services in corporate
enterprises. Foreign currency exchange rates accounted for a $165 million or a two percentage point increase in
revenue.
Server and Tools operating income increased reflecting the increased revenue, partially offset by growth in
headcount-related costs and cost of revenue for services. Headcount-related costs increased 12%, driven by an
11% increase in headcount and an increase in salaries and benefits for existing headcount, partially offset by a
decrease in stock-based compensation expense. Cost of revenue increased $243 million or 13% reflecting growth
in services provided.
Fiscal year 2006 compared to fiscal year 2005
Server and Tools revenue increased mainly driven by growth in SQL Server, Windows Server, and Visual Studio.
SQL Server 2005 and Visual Studio 2005 were launched in the second quarter of fiscal year 2006 and produced
revenue growth in these product lines. Server and Server applications revenue (including CAL revenue) and
developer tools, training and certification revenue increased $1.07 billion or 16% during fiscal year 2006. The
results reflect broad adoption of Windows Server products, especially SQL Server, which grew over 30% for the
year. Consulting, Premier and Professional product support services revenue increased $217 million or 15%
primarily due to higher demand for services.
Server and Tools operating income increased primarily reflecting the increased revenue, partially offset by
increased sales and marketing expenses related to supporting long-term strategies and the launches of SQL
Server 2005 and Visual Studio 2005. Headcount-related costs increased 5%, driven by an 11% increase in
headcount and an increase in salaries and benefits for existing headcount, partially offset by a decrease in stock-
based compensation expense.