Microsoft 2007 Annual Report Download - page 21

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
MBD offerings consist of the Microsoft Office system and Microsoft Dynamics business solutions. Microsoft Office
system products are designed to increase personal, team, and organization productivity through a range of
programs, services, and software solutions. Growth of revenue from the Microsoft Office system offerings, which
generate over 90% of MBD revenue, depends on our ability to add value to the core Office product set and to
continue to expand our product offerings in other information worker areas such as enterprise content
management, collaboration, unified communications, and business intelligence. Microsoft Dynamics products
provide business solutions for financial management, customer relationship management, supply chain
management, and analytics applications for small and mid-size businesses, large organizations, and divisions of
global enterprises. We evaluate our results based upon the nature of the end user in two primary parts – business
revenue which includes Microsoft Office system revenue generated through volume licensing agreements and
Microsoft Dynamics revenue, and consumer revenue which includes revenue from retail packaged product sales,
OEM revenue, and sales of pre-installed versions of Office in Japan.
Fiscal year 2007 compared to fiscal year 2006
MBD revenue increased primarily reflecting licensing of the 2007 Microsoft Office system. Revenue from
consumer sales increased $371 million or 11% while revenue from business sales increased $1.54 billion or 14%.
The increase in business revenue includes a 21% increase in Microsoft Dynamics customer billings. Foreign
currency exchange rates accounted for a $248 million or a two percentage point increase in revenue.
MBD operating income increased reflecting the increased revenue, partially offset by increased sales and
marketing expenses and cost of revenue primarily associated with the 2007 Microsoft Office system. The increase
in sales and marketing expenses reflects increased headcount-related expenses, increased sales support costs
from our Enterprise Software Advisor channel partners, and increased launch-related marketing expenses.
Headcount-related costs increased 10%, driven by a 6% increase in headcount and an increase in salaries and
benefits for existing headcount, partially offset by decreased stock-based compensation expense.
Fiscal year 2006 compared to fiscal year 2005
MBD revenue increased reflecting an increase in business sales of $1.01 billion or 10%, partially offset by a
decrease in consumer sales of $44 million or 1%. The increase in business sales reflects a 16% increase in
Microsoft Dynamics customer billings.
MBD operating income increased reflecting the increased revenue partially offset by increased sales and
marketing expenses related to supporting field sales efforts and increased research and development expenses.
Headcount-related costs increased 8%, driven by a 14% increase in headcount and an increase in salaries and
benefits for existing headcount, partially offset by decreased stock-based compensation expense.
Entertainment and Devices Division
(In millions, except percentages) 2007 2006 2005
Percent
Change 2007
versus 2006
Percent
Change 2006
versus 2005
Revenue $ 6,083 $ 4,756 $3,515 28% 35%
Operating loss $(1,892) $(1,284) $ (539) (47)% (138)%
The Entertainment and Devices Division (“EDD”) products include the Xbox video game system; PC games;
consumer software and hardware products; the Zune digital music and entertainment device; Mediaroom, our
Internet protocol television software; and Mobile and Embedded devices (Windows Mobile software platform,
Windows Embedded device operating system and Windows Automotive). The success of video game consoles is
determined by console innovation and quality, the portfolio of video game content for the console, online offerings,
and the market share of the console. We believe that the functionality of the Xbox 360 console, games portfolio,
and online offerings are well-positioned relative to recently launched competitive consoles.
Fiscal year 2007 compared to fiscal year 2006
EDD revenue increased primarily due to increased Xbox 360 console sales, Zune sales, and increased Xbox
accessories and video game sales. We shipped 6.6 million Xbox 360 consoles during fiscal year 2007 as
compared