Microsoft 2009 Annual Report Download - page 24

Download and view the complete annual report

Please find page 24 of the 2009 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 84

  • 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
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84

PAGE 24
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Entertainment and Devices Division
(In millions, except percentages) 2009 2008 2007
Percentage
Change 2009
Versus 2008
Percentage
Change 2008
Versus 2007
Revenue $7,753 $8,206 $6,139 (6)% 34%
Operating income (loss) $169 $497 $(1,898) (66)% *
* Not meaningful
Entertainment and Devices Division (“EDD”) offerings include the Xbox 360 platform (which includes the Microsoft
Xbox 360 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 Microsoft 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 Apple’s Macintosh computers and Microsoft PC hardware products, and is responsible for all
retail sales and marketing for Microsoft Office and Windows operating systems.
Fiscal year 2009 compared with fiscal year 2008
EDD revenue decreased across most lines of business. Revenue from our non-gaming business decreased $292
million or 12%, primarily reflecting decreased Zune and PC hardware product revenue. Xbox 360 platform and PC
game revenue decreased $161 million or 3%, primarily as a result of decreased revenue per Xbox 360 console due
to price reductions during the past 12 months, partially offset by increased Xbox 360 console sales and increased
Xbox Live revenue. We shipped 11.2 million Xbox 360 consoles during fiscal year 2009, compared with 8.7 million
Xbox 360 consoles during fiscal year 2008. Foreign currency exchange rates accounted for a $74 million or one
percentage point decrease in revenue.
EDD operating income decreased primarily due to decreased revenue and increased research and development
expenses, partially offset by decreased cost of revenue. Research and development expenses increased $252
million or 16%, primarily reflecting increased headcount-related expenses associated with the Windows Mobile
device platform, driven by recent acquisitions. Cost of revenue decreased $326 million or 7%, primarily due to
decreased Xbox 360 platform costs.
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 $684 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 $89 million or 7%,
primarily reflecting increased headcount-related expenses and increased bad debt expense. Headcount-related
expenses increased 22%, driven by an increase in headcount from the prior year-end.