Microsoft 2009 Annual Report Download - page 17

PAGE 17
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR FISCAL YEARS 2009, 2008, AND 2007
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 personal computers, servers, 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 Bing, 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 Bing 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 approximately 40% of its annual 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.
The unfavorable global economic environment adversely affected our business in fiscal year 2009 as consumers
and businesses cut back on spending, which reduced PC shipments and IT investments. But because we offer a
wide range of products that enable companies to improve productivity and reduce costs, and because we have a
strong pipeline of products, including new versions of Windows and Office planned for release in fiscal year 2010,
we believe that Microsoft is well-positioned to weather the economic downturn. As the global economy improves, this
will create new opportunities to increase revenue. To further help weather the economic downturn, in fiscal year
2009 we made important adjustments to our cost structure and streamlined internal business processes.
Technological innovation is the foundation of our long-term growth and we intend to maintain our commitment to
investment in research and development, engineering excellence, and delivering high-quality products and services
to customers and partners. Recognizing that one of our primary business objectives is to help accelerate worldwide
PC adoption and software upgrades, we continue to advance the functionality, security, and value of Windows
operating systems. We remain focused on selling our products in emerging markets and reducing the amount of
unlicensed software used in those markets.
We also continue to develop innovative software applications and solutions that we believe will enhance
information worker productivity, improve communication and collaboration in work groups, aid business intelligence,
and streamline processes for small and mid-sized businesses. To sustain growth in the face of 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.
In addition, we continue to invest in research and development in existing and new lines of business, including
cloud computing, search, 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.