Microsoft 2008 Annual Report Download - page 16

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PAGE 15
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR FISCAL YEARS 2008, 2007, AND 2006
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 generate revenue by developing, manufacturing, licensing, and supporting a wide range of software
products and services for many different types of computing devices. Our software products and services include
operating systems for servers, personal computers, and intelligent devices; server applications for distributed
computing environments; information worker productivity applications; business solutions applications; high-
performance computing applications; software development tools; and video games. We provide consulting and
product support services, and we train and certify computer system integrators and developers. We also design
and sell hardware including the Xbox 360 video game console, the Zune digital music and entertainment device,
and peripherals. Online offerings and information are delivered through Live Search, Windows Live, Office Live,
our MSN portals and channels, and the Microsoft Online Services platform which includes offerings for
businesses such as Microsoft Dynamics CRM Online, Exchange Hosted Services, Exchange Online, and
SharePoint Online. We enable the delivery of online advertising across our broad range of digital media properties
and on Live Search through our proprietary adCenter® platform.
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 Entertainment and Devices Division is particularly seasonal as its products are
aimed at the consumer market and are in highest demand during the holiday shopping season. Typically, the
Entertainment and Devices Division has generated over 40% of its yearly segment revenues in our second fiscal
quarter. In fiscal year 2007, our revenue was highest in the third quarter due to the recognition of $1.7 billion of
revenue previously deferred from the Express Upgrade to Windows Vista and Microsoft Office Technology
Guarantee programs and pre-shipments of Windows Vista and the 2007 Microsoft Office system. The technology
guarantee programs provided customers who purchased current products with free or discounted rights to
Windows Vista and the 2007 Microsoft Office system when those products became available to consumers.
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 and to
develop operating system versions targeted at emerging markets. We also are increasing our focus on selling our
products in emerging markets and reducing the amount of unlicensed software used 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 proprietary and open source software, our goal is to
deliver products that provide the best platform for network computing – software that is easiest to deploy and
manage, and that is 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 online
solutions, business solutions, mobile computing, communication, entertainment, and other areas that we believe
may contribute to our long-term growth. We also invest in research and development of 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, and improving
our internal business processes. Our focus in fiscal year 2009 is to continue to build on this foundation and to
continue to execute 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.