Based on our assessment of key technology trends and our broad focus on long-term research and development of new products and services, we see significant opportunities to generate future growth. We invest research and development resources in new products and services in these areas. The capabilities and accessibility of PCs, tablets, phones, televisions, and other devices powered by rich software platforms and applications continue to grow.
With this trend, we believe the full potential of software will be seen and felt in how people use these devices and the associated services at work and in their personal lives. We work with an ecosystem of partners to deliver a broad spectrum of Windows devices. In some cases, we build our own devices, as we have chosen to do with Xbox and Surface.
In all our work with partners and on our own devices, we focus on delivering seamless services and experiences across devices. As consumer services and hardware advance, we expect they will continue to better complement one another, connecting the devices people use daily to unique communications, productivity, and entertainment services from Microsoft and our partners and developers around the world. Windows 8 reflects this shift.
Launched in October , Windows 8 was designed to unite the light, thin, and convenient aspects of a tablet with the power of a PC. The Windows 8 operating system includes the Windows Store, which offers a large and growing number of applications from Microsoft and partners for both business and consumer customers.
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Going forward, our strategy will focus on creating a family of devices and services for individuals and businesses that empower people around the globe at home, at work, and on the go, for the activities they value most. This strategy will require investment in datacenters and other infrastructure to support our services, and will bring continued competition with Apple, Google, and other well-established and emerging competitors.
We believe our history of powering devices such as Windows PCs and Xbox, as well as our experience delivering high-value experiences through Office and other applications, will position us for future success. Today, businesses face important opportunities and challenges. Enterprises are asked to deploy technology that drives business strategy forward. They decide what solutions will make employees more productive, collaborative, and satisfied, or connect with customers in new and compelling ways. They work to unlock business insights from a world of data.
At the same time, they must manage and secure corporate information that employees access across a growing number of personal and corporate devices. To address these opportunities, businesses look to our world-class business applications like Microsoft Dynamics, Office, Exchange, SharePoint, Lync, Yammer, and our business intelligence solutions. They rely on our technology to manage employee corporate identity and to protect their corporate data. And, increasingly, businesses of all sizes are looking to Microsoft to realize the benefits of the cloud.
Helping businesses move to the cloud is one of our largest opportunities. Cloud-based solutions provide customers with software, services, and content over the Internet by way of shared computing resources located in centralized data centers. The shift to the cloud is driven by three important economies of scale: Because of the improved economics, the cloud offers unique levels of elasticity and agility that enable new solutions and applications. For businesses of all sizes, the cloud creates the opportunity to focus on innovation while leaving non-differentiating activities to reliable and cost-effective providers.
Unique to Microsoft, we continue to design and deliver cloud solutions that allow our customers to use both the cloud and their on-premise assets however best suits their own needs. For example, a company can choose to deploy Office or Microsoft Dynamics on premise, as a cloud service, or a combination of both. With Windows Server , Windows Azure, and System Center infrastructure, businesses can deploy applications in their own datacenter, a partner's datacenter, or in Microsoft's datacenter with common security, management, and administration across all environments, with the flexibility and scale they desire.
These hybrid capabilities allow customers to fully harness the power of the cloud so they can achieve greater levels of efficiency and tap new areas of growth. There are several distinct areas of technology that we are focused on driving forward. Our goal is to lead the industry in these areas over the long-term, which we expect will translate to sustained growth well into the future.
We are investing significant resources in:. We believe the breadth of our devices and services portfolio, our large, global partner and customer base, and the growing Windows ecosystem position us to be a leader in these areas. The market for software, devices, and cloud-based services is dynamic and highly competitive. Some of our traditional businesses such as the Windows operating system are in a period of transition. Our competitors are developing new devices and deploy competing cloud-based services for consumers and businesses.
The devices and form factors customers prefer evolve rapidly, and influence how users access services in the cloud and in some cases the user's choice of which suite of cloud-based services to use. The Windows ecosystem must continue to evolve and adapt, over an extended time, in pace with this changing environment.
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To support our strategy of offering a family of devices and services designed to empower our customers for the activities they value most, we announced a functional realignment in July Through this realignment our goal is to become more nimble, collaborative, communicative, motivated, and decisive. Even if we achieve these benefits, the investments we are making in devices and infrastructure to support our cloud-based services will increase our operating costs and may decrease our operation margins. We prioritize our investments among the highest long-term growth opportunities.
These investments require significant resources and are multi-year in nature. The products and services we bring to market may be developed internally, as part of a partnership or alliance, or through acquisition. Our success is highly dependent on our ability to attract and retain qualified employees. We hire a mix of university and industry talent worldwide. Microsoft competes for talented individuals worldwide by offering broad customer reach, scale in resources, and competitive compensation.
Aggregate demand for our software, services, and hardware is correlated to global macroeconomic factors, which remain dynamic. See a discussion of these factors and other risks under Risk Factors in our fiscal year Form K. Our revenue historically has fluctuated quarterly and has generally been 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.
Quarterly and annual revenue may be impacted by the deferral of revenue. See the discussions below regarding revenue deferred on sales of Windows 7 with an option to upgrade to Windows 8 Pro at a discounted price the "Windows Upgrade Offer" and sales of the previous version of the Microsoft Office system with a guarantee to be upgraded to the new Office at minimal or no cost the "Office Upgrade Offer", for the offer relating to the new Office, and "the Office Upgrade Offer" for the prior offer relating to Office If our customers elect to license cloud-based versions of our products and services rather than licensing transaction-based products and services, the associated revenue will shift from being recognized at the time of the transaction to being recognized over the subscription period or upon consumption, as applicable.
Revenue increased, primarily due to higher revenue from Server and Tools as well as revenue from new products and services, including Windows 8, Surface, and the new Office, offset in part by the impact on revenue of a decline in the x86 PC market. Other key changes in cost of revenue and operating expenses were:. Revenue in fiscal year also included Skype revenue from the date of acquisition. Fiscal year net income and diluted earnings per share reflected a partial settlement with the U.
Internal Revenue Service "I. The partial settlement with the I. The revenue and operating income loss amounts in this section are presented on a basis consistent with accounting principles generally accepted in the U. GAAP" and include certain reconciling items attributable to each of the segments. Segment information appearing in Note 21 — Segment Information and Geographic Data of the Notes to Financial Statements is presented on a basis consistent with our internal management reporting.
Certain corporate-level activity has been excluded from segment operating results and is analyzed separately. In July , we announced a change in organizational structure as part of our transformation to a devices and services company. As we evolve how we allocate resources and analyze performance in the new structure, it is possible that our segments may change. Windows Division develops and markets operating systems for computing devices, related software and online services, Surface RT and Pro devices, and PC accessories. This collection of software, hardware, and services is designed to empower individuals, companies, and organizations and to simplify everyday tasks through seamless operations across the user's hardware and software.
The general availability of Surface Pro started February 9, The remaining Windows Division revenue is generated by commercial and retail sales of Windows, Surface, PC accessories, and online advertising. Partially offsetting these increases was a decrease in OEM revenue. Windows Division operating income decreased, primarily due to higher cost of revenue and sales and marketing expenses, offset in part by revenue growth. Windows Division revenue reflected relative performance in the PC market segments. Server and Tools develops and markets technology and related services that enable information technology professionals and their systems to be more productive and efficient.
We also offer developer tools, training, and certification. Server and Tools revenue increased in both product sales and Enterprise Services. Server and Tools operating income increased, primarily due to revenue growth, offset in part by higher cost of revenue and sales and marketing expenses. Headcount-related expenses increased due mainly to higher Enterprise Services headcount supporting revenue growth, while datacenter expenses grew primarily to support our online services offerings.
Server and Tools operating income increased primarily due to revenue growth, offset in part by higher costs of providing products and services and increased sales and marketing expenses. Online Services Division "OSD" develops and markets information and content designed to help people simplify tasks and make more informed decisions online, and help advertisers connect with audiences.
Discussion & Analysis
Bing and MSN generate revenue through the sale of search and display advertising, accounting for nearly all of OSD's revenue. Search revenue grew primarily due to increased revenue per search, resulting from ongoing improvements in ad products, while display advertising revenue decreased primarily due to industry-wide market pressure. Operating loss was further reduced by higher revenue and lower cost of revenue and operating expenses. Search revenue grew due to increased revenue per search, increased volumes reflecting general market growth, and share gains in the U.
BUSINESS DESCRIPTION
According to third-party sources, Bing organic U. The non-cash, non-tax-deductible charge related mainly to goodwill acquired through our acquisition of aQuantive, Inc. Microsoft Business Division "MBD" develops and markets software and online services designed to increase personal, team, and organization productivity. The general availability of the new Office started on January 29, We evaluate MBD results based upon the nature of the end user in two primary parts: Business revenue includes Office revenue generated through subscription and volume licensing agreements with software assurance, license-only agreements for Office, and Microsoft Dynamics revenue.
Consumer revenue includes revenue from retail packaged product sales and OEM revenue. MBD revenue increased reflecting growth in business revenue, partially offset by a decline in consumer revenue. MBD operating income increased, primarily due to revenue growth, offset in part by higher sales and marketing expenses and cost of revenue. MBD revenue increased primarily reflecting sales of Office. MBD operating income increased, primarily due to revenue growth, offset in part by higher cost of revenue and research and development expenses. Research and development expenses increased, due mainly to an increase in headcount-related expenses.
Entertainment and Devices Division "EDD" develops and markets products and services designed to entertain and connect people. We acquired Skype on October 13, , and its results of operations from that date are reflected in our results discussed below. In June , we announced that we expect our next generation console, Xbox One, to be available for purchase in the second quarter of fiscal year EDD revenue increased, due to higher Windows Phone and Skype revenue, offset in part by lower Xbox platform revenue. Skype revenue increased, due primarily to including a full year of results in fiscal year EDD operating income increased, primarily due to revenue growth and lower cost of revenue, offset in part by higher operating expenses.
EDD revenue increased primarily reflecting Skype and Windows Phone revenue, offset in part by lower Xbox platform revenue. Video game revenue decreased due to strong sales of Halo Reach in the prior year. EDD operating income decreased reflecting higher cost of revenue and operating expenses, offset in part by revenue growth.
Certain corporate-level activity is not allocated to our segments, including costs of: Corporate-level expenses increased due mainly to full year Puerto Rican excise taxes, higher headcount-related expenses, and changes in foreign currency exchange rates. Cost of revenue includes: Cost of revenue increased reflecting higher headcount-related expenses, payments made to Nokia, and changes in the mix of products and services sold. 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. Sales and marketing expenses include payroll, employee benefits, stock-based compensation expense, and other headcount-related expenses associated with sales and marketing personnel and the costs of advertising, promotions, trade shows, seminars, and other programs.
General and administrative expenses include payroll, employee benefits, stock-based compensation expense, severance expense, and other headcount-related expenses associated with finance, legal, facilities, certain human resources and other administrative personnel, certain taxes, and legal and other administrative fees. We test goodwill for impairment annually on May 1 at the reporting unit level using a fair value approach. No impairment of goodwill was identified as of May 1, Our goodwill impairment test as of May 1, , indicated that OSD's carrying value exceeded its estimated fair value.
We use derivative instruments to: Gains and losses from changes in fair values of derivatives that are not designated as hedges are primarily recognized in other income expense.
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Other than those derivatives entered into for investment purposes, such as commodity contracts, the gains losses are generally economically offset by unrealized gains losses in the underlying available-for-sale securities, which are recorded as a component of other comprehensive income "OCI" until the securities are sold or other-than-temporarily impaired, at which time the amounts are reclassified from accumulated other comprehensive income "AOCI" into other income expense. Dividends and interest income decreased due to lower yields on our fixed-income investments, offset in part by higher average portfolio investment balances.
Net recognized gains on investments decreased primarily due to lower gains on sales of equity and fixed-income securities and a gain recognized on the partial sale of our Facebook holding in the prior year, offset in part by lower other-than-temporary impairments. Net losses on derivatives decreased due to gains on equity derivatives in the current fiscal year as compared with losses in the prior fiscal year, and lower losses on commodity and foreign exchange derivatives as compared to the prior fiscal year, offset in part by losses on interest-rate derivatives in the current fiscal year as compared to gains in the prior fiscal year.
Interest expense increased due to our increased issuance of debt in the prior year. Net recognized gains on investments increased, primarily due to higher gains on sales of equity and fixed-income securities and a gain recognized on the partial sale of our Facebook holding upon the initial public offering on May 18, , offset in part by higher other-than-temporary impairments. Net losses on derivatives increased due to losses on commodity and equity derivatives in the current fiscal year as compared with gains in the prior fiscal year, offset in part by fewer losses on foreign exchange contracts in the current fiscal year as compared to the prior fiscal year.
Changes in foreign currency remeasurements were primarily due to currency movements net of our hedging activities. Our effective tax rate was lower than the U. Changes in the mix of income before income taxes between the U.
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We supply Windows, our primary Windows Division product, to customers through our U. In fiscal years and , our U. The primary driver for the increase in the U. This increase relates primarily to transfer pricing, including transfer pricing developments in certain foreign tax jurisdictions, primarily Denmark. While we settled a portion of the I. In February , the I. As of June 30, , the primary unresolved issue relates to transfer pricing which could have a significant impact on our financial statements if not resolved favorably.
We do not believe it is reasonably possible that the total amount of unrecognized tax benefits will significantly increase or decrease within the next 12 months because we do not believe the remaining open issues will be resolved within the next 12 months. We also continue to be subject to examination by the I.
We are subject to income tax in many jurisdictions outside the U. Our operations in certain jurisdictions remain subject to examination for tax years to , some of which are currently under audit by local tax authorities. The resolutions of these audits are not expected to be material to our financial statements. Our effective tax rates were lower than the U. In fiscal year , we settled a portion of an I. The primary driver for the decrease in the U. Our short-term investments are primarily to facilitate liquidity and for capital preservation.
They consist predominantly of highly liquid investment-grade fixed-income securities, diversified among industries and individual issuers. The macro-environment includes political, legal, ecological, technological and social conditions which are mainly the same for all companies, regardless of their sector Baker , pp. Through the external analysis which is described in section 2. The ultimate cause of those strengths and weaknesses are the special competences of a company — its resources and capabilities, which can be contributed to the competition Aaker , pp.
The value chain by Porter is one model to classify the different resources and capabilities see figure 2. If you compare the operating income to sales of the year Sony achieved a ratio of 3. Although Microsoft was entering a new market they did not have to face the problem that the company was not known by customers. Politik - Politische Theorie und Ideengeschichte. Business economics - Miscellaneous. Business economics - Business Management, Corporate Governance. Business economics - Supply, Production, Logistics. Business economics - Controlling. Economics - Case Scenarios. GRIN Publishing, located in Munich, Germany, has specialized since its foundation in in the publication of academic ebooks and books.
The publishing website GRIN. Free Publication of your term paper, essay, interpretation, bachelor's thesis, master's thesis, dissertation or textbook - upload now! Register or log in. Our newsletter keeps you up to date with all new papers in your subjects. Request a new password via email. Contents 1 Introduction 2 Environmental Analysis 2.
Business Report Microsoft Xbox. Marketing concept and strategy.