Microsoft 2013 Annual Report Download - page 12

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Competition
Our Xbox gaming and entertainment business competes with console platforms from Nintendo and Sony, both of which
have a large, established base of customers. The lifecycle for gaming and entertainment consoles averages five to 10
years. We released Xbox 360 in November 2005. Nintendo and Sony released competing versions of their game consoles
in November 2006. In June 2013, we announced that we expect our next generation console, Xbox One, to be available
for purchase in the second quarter of fiscal year 2014. Sony also announced their next generation console will be
available for purchase in late 2013. Nintendo released their latest generation console in November 2012.
We believe the success of gaming and entertainment consoles is determined by the availability of games for the console,
providing exclusive game content that gamers seek, the computational power and reliability of the console, and the ability
to create new experiences via online services, downloadable content, and peripherals. In addition to Nintendo and Sony,
our businesses compete with both Apple and Google in offering content products and services to the consumer. We
believe the Xbox entertainment platform is positioned well against competitive products and services based on significant
innovation in hardware architecture, user interface, developer tools, online gaming and entertainment services, and
continued strong exclusive content from our own game franchises as well as other digital content offerings.
Windows Phone faces competition primarily from Apple, Google, and Blackberry. Skype competes primarily with Apple
and Google, which offer a selection of instant messaging, voice, and video communication products.
We compete primarily on the basis of product quality and variety, unique capabilities of our products, timing of product
releases, and effectiveness of distribution and marketing.
OPERATIONS
We have operations centers that support all operations in their regions, including customer contract and order processing,
credit and collections, information processing, and vendor management and logistics. The regional center in Ireland
supports the European, Middle Eastern, and African region; the center in Singapore supports the Japan, India, Greater
China, and Asia-Pacific region; and the centers in Fargo, North Dakota, Fort Lauderdale, Florida, Puerto Rico, Redmond,
Washington, and Reno, Nevada support Latin America and North America. In addition to the operations centers, we also
operate data centers throughout the Americas, Europe, and Asia regions.
To serve the needs of customers around the world and to improve the quality and usability of products in international
markets, we localize many of our products to reflect local languages and conventions. Localizing a product may require
modifying the user interface, altering dialog boxes, and translating text.
We contract most of our manufacturing activities for Xbox 360 and related games, Kinect for Xbox 360, various retail
software packaged products, Surface devices, and Microsoft PC accessories to third parties. Our products may include
some components that are available from only one or limited sources. Our Xbox 360 console, Kinect for Xbox 360,
Surface devices, and Microsoft PC accessories include key components that are supplied by a single source. The
integrated central processing unit/graphics processing unit for the Xbox 360 console is purchased from IBM, and the
supporting embedded dynamic random access memory chips are purchased from Taiwan Semiconductor Manufacturing
Company. We generally have the ability to use other manufacturers if the current vendor becomes unavailable or unable
to meet our requirements. We generally have multiple sources for raw materials, supplies, and components, and are often
able to acquire component parts and materials on a volume discount basis.
RESEARCH AND DEVELOPMENT
During fiscal years 2013, 2012, and 2011, research and development expense was $10.4 billion, $9.8 billion, and
$9.0 billion, respectively. These amounts represented 13% of revenue in each of those years. We plan to continue to
make significant investments in a broad range of research and development efforts.