Microsoft 2008 Annual Report Download - page 23

Download and view the complete annual report

Please find page 23 of the 2008 Microsoft annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 73

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73

PAGE 22
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
Entertainment and Devices Division (“EDD”) offerings include the Xbox 360 platform (which includes the Microsoft
Xbox video game console system, Xbox 360 video games, Xbox Live, and Xbox 360 accessories), the Zune
digital music and entertainment platform, PC software games, online games and services, Mediaroom (our
Internet protocol television software), the Surface computing platform, mobile and embedded device platforms,
and other devices. EDD leads the development efforts for our line of consumer software and hardware products
including application software for Macintosh computers and Microsoft PC hardware products, and is responsible
for all retail sales and marketing for Microsoft Office and the Windows operating systems. In April 2008, we
acquired Danger, Inc. (“Danger”), a software-as-a-service company that provides mobile operators with an
integrated end-to-end solution to deliver mobile data and Internet services to their subscribers.
Fiscal year 2008 compared with fiscal year 2007
EDD revenue increased primarily due to increased Xbox 360 platform sales. Xbox 360 platform and PC game
revenue increased $1.7 billion or 41% as a result of increased Xbox 360 console sales, video game sales led by
Halo 3, Xbox Live revenue, and Xbox 360 accessory sales. We shipped 8.7 million Xbox 360 consoles during
fiscal year 2008, compared with 6.6 million Xbox 360 consoles during fiscal year 2007.
EDD operating income increased primarily due to increased revenue and decreased cost of revenue, partially
offset by increased research and development expenses and sales and marketing expenses. Cost of revenue
decreased $683 million or 13%, reflecting the impact of the $1.1 billion Xbox 360 charge in fiscal year 2007
(which primarily related to the warranty expansion), partially offset by increased Xbox 360 product costs related to
increased unit console sales. Research and development expenses increased $242 million or 18%, primarily
reflecting increased headcount-related expenses and costs related to the acquisition of Danger, including a $24
million in-process research and development expense. Sales and marketing expenses increased $93 million or
8%, primarily reflecting increased headcount-related expenses and increased bad debt expense. Headcount-
related expenses increased 21%, driven by an increase in headcount during the year.
Fiscal year 2007 compared with fiscal year 2006
EDD revenue increased primarily due to increased Xbox 360 platform and Zune sales. We shipped 6.6 million
Xbox 360 consoles during fiscal year 2007 as compared to 5.0 million consoles during fiscal year 2006. Xbox and
PC game revenue increased $650 million or 19% as a result of increased Xbox 360 platform sales, partially offset
by decreased sales of the first generation Xbox console and related accessories and video games. Zune,
consumer hardware and software, and Mediaroom revenue increased $539 million or 65% primarily driven by the
Zune launch in November 2006.
EDD operating loss increased primarily due to the $1.1 billion Xbox 360 charge recognized in the fourth quarter
of fiscal year 2007 and Zune launch-related expenses. The increase in operating loss was partially offset by
increased Xbox 360 platform sales and decreased Xbox 360 console manufacturing costs. Headcount-related
expenses increased 14%, driven by an increase in headcount during the year.
Fiscal Year 2009 Outlook
We expect revenue to be flat or to decrease due to year-over-year variations in product launches, volume, mix,
and prices across our portfolio of products and services. We expect sustained profitability for fiscal year 2009.
Corporate-Level Activity
(In millions, except percentages) 2008 2007 2006
Percentage
Change 2008
versus 2007
Percentage
Change 2007
versus 2006
Corporate-level activity $(6,704) $(4,777) $(4,804)
(40)% 1%
Certain corporate-level activity, including expenses related to corporate operations associated with broad-based
sales and marketing, product support services, human resources, legal, finance, information technology,
corporate development and procurement activities, research and development and other costs, and legal
settlements and contingencies, is not allocated to our segments.