Microsoft 2014 Annual Report Download - page 27

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26
Commercial Other gross margin increased $342 million or 59%, due to higher revenue, offset in part by a $674 million or
17% increase in cost of revenue. The increase in cost of revenue was due mainly to higher datacenter expenses,
reflecting investment in online operations infrastructure, and increased headcount-related expenses, mainly due to higher
Enterprise Services headcount supporting revenue growth.
Corporate and Other
(In millions, except percentages) 2014 2013 2012
Percentage
Change 2014
Versus 2013
Percentage
Change 2013
Versus 2012
Revenue $ (415) $ 403 $ (485) (203)% 183
%
Gross margin $ (494) $ 372 $ (582) (233)% 164
%
Corporate and Other revenue comprises certain revenue deferrals, including those related to product and service upgrade
offers and pre-sales of new products to OEMs prior to general availability.
Fiscal year 2014 compared with fiscal year 2013
Corporate and Other revenue decreased $818 million, primarily due to the timing of revenue deferrals. During fiscal year
2014, we deferred a net $349 million of revenue related to Bundled Offerings. During fiscal year 2013, we recognized
$540 million of previously deferred revenue related to the Windows Upgrade Offer. The revenue was recognized upon
expiration of the offer.
Corporate and Other gross margin decreased $866 million, due mainly to decreased revenue.
Fiscal year 2013 compared with fiscal year 2012
Corporate and Other revenue increased $888 million or 183%, primarily due to the timing of revenue deferrals. During
fiscal year 2013, we recognized $540 million of revenue that had been deferred in fiscal year 2012 related to the Windows
Upgrade Offer. The revenue was recognized upon expiration of the offer.
Corporate and Other gross margin increased $954 million or 164%, due mainly to increased revenue.
OPERATING EXPENSES
Research and Development
(In millions, except percentages) 2014 2013 2012
Percentage
Change 2014
Versus 2013
Percentage
Change 2013
Versus 2012
Research and development $ 11,381 $ 10,411 $ 9,811 9% 6%
As a percent of revenue 13%
13% 13% 0ppt 0ppt
Research and development expenses include payroll, employee benefits, stock-based compensation expense, and other
headcount-related expenses associated with product development. Research and development expenses also include
third-party development and programming costs, localization costs incurred to translate software for international markets,
and the amortization of purchased software code.
Fiscal year 2014 compared with fiscal year 2013
Research and development expenses increased $970 million or 9%, due mainly to increased investment in new products
and services in our Devices engineering group, including $275 million of NDS expenses, and increased investment in our
Applications and Services engineering group.