Microsoft 2009 Annual Report Download - page 19

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PAGE 19
Fiscal year 2008 compared with fiscal year 2007
Revenue growth was driven primarily by increased licensing of the 2007 Microsoft Office system, increased Xbox
360 platform sales, increased revenue associated with Windows Server and SQL Server, and increased licensing of
Windows Vista. Foreign currency exchange rates accounted for a $1.6 billion or three percentage point increase in
revenue during fiscal year 2008.
Operating income increased primarily reflecting increased revenue, partially offset by increased headcount-
related expenses, increased costs for legal settlements and legal contingencies, and increased cost of revenue.
Headcount-related expenses increased 12%, reflecting an increase in headcount during fiscal year 2008. We
incurred $1.8 billion of legal charges during fiscal year 2008 primarily related to the European Commission fine of
$1.4 billion (€899 million) as compared with $511 million of legal charges during fiscal year 2007. Cost of revenue
increased $905 million or 8%, reflecting increased data center and equipment costs, online content expenses, and
increased costs associated with the growth in our consulting services, partially offset by decreased Xbox 360 costs.
The decreased Xbox 360 costs reflect the $1.1 billion charge in fiscal year 2007 related to the expansion of our Xbox
360 warranty, partially offset by increased Xbox 360 product costs reflecting growth in unit console sales.
The diluted earnings per share growth was impacted by the $1.1 billion Xbox 360 charge in fiscal year 2007 and
share repurchases during fiscal year 2008.
Fiscal Year 2010 Outlook
Global macroeconomic factors have a strong correlation to demand for our software, services, hardware, and online
offerings. While we see the potential for improvement in calendar year 2010, we are unable to predict the actual
timing. In the meantime, we are positive about our relative market position and our product delivery plans. In
addition, we remain focused on executing in the areas we can control by continuing to provide high value products at
the lowest total cost of ownership while managing our expenses.
SEGMENT PRODUCT REVENUE/OPERATING INCOME (LOSS)
The revenue and operating income (loss) amounts in this section are presented on a basis consistent with
accounting principles generally accepted in the United States (“U.S. GAAP”) and include certain reconciling items
attributable to each of the segments. Segment information appearing in Note 22 – Segment Information and
Geographic Data of the Notes to Financial Statements is presented on a basis consistent with our current internal
management reporting, in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 131,
Disclosures about Segments of an Enterprise and Related Information. Certain corporate-level activity has been
excluded from segment operating results and is analyzed separately. Prior period amounts have been recast to
conform to the way we internally managed and monitored performance at the segment level during the current
period.
Client
(In millions, except percentages) 2009 2008 2007
Percentage
Change 2009
Versus 2008
Percentage
Change 2008
Versus 2007
Revenue $14,712 $16,865 $14,911 (13)% 13%
Operating income $10,856 $13,105 $11,424 (17)% 15%