10-KPeriod: FY2006

MICROSOFT CORP Annual Report, Year Ended Jun 30, 2006

Filed August 25, 2006For Securities:MSFT

Summary

Microsoft Corporation's 2006 10-K filing highlights a year of substantial revenue growth and significant investment in future products. The company reported total revenue of $44.28 billion, an increase of 11% year-over-year, driven by strong performance in its Server and Tools, Client, and Information Worker segments, boosted by new product launches like SQL Server 2005 and Visual Studio 2005, as well as the initial rollout of the Xbox 360. Despite increased operating expenses, particularly in sales and marketing and cost of revenue related to Xbox 360 production, operating income grew by 13% to $16.47 billion. The company also demonstrated a strong commitment to returning capital to shareholders, completing a $30 billion share repurchase program and authorizing new significant repurchase programs. Looking ahead, Microsoft is focused on driving continued growth through its upcoming launches of Windows Vista and the 2007 Microsoft Office system. The company is strategically investing in adjacent businesses and new markets, including cloud services and online offerings, signaling a forward-looking approach to innovation and market expansion. While facing ongoing competition and regulatory scrutiny, Microsoft's robust financial position, substantial cash reserves, and clear product roadmap position it for continued leadership in the technology sector.

Key Highlights

  • 1Reported total revenue of $44.28 billion for fiscal year 2006, an 11% increase from the prior year.
  • 2Achieved operating income of $16.47 billion, a 13% increase year-over-year, despite increased investment in R&D and sales & marketing.
  • 3Successfully launched the Xbox 360 console, contributing significantly to the Home and Entertainment segment's revenue growth.
  • 4Announced significant capital return initiatives, including the completion of a $30 billion share repurchase program and authorization of new repurchase programs totaling up to $36.2 billion.
  • 5Anticipates continued double-digit revenue growth in fiscal year 2007 driven by the upcoming launches of Windows Vista and the 2007 Microsoft Office system.
  • 6Investing heavily in research and development, with R&D expenses totaling $6.58 billion, focusing on innovation across core businesses and new market opportunities.
  • 7Addressing ongoing competition from open-source software and evolving business models like software-as-a-service.

Frequently Asked Questions

Revenue growth was primarily driven by strong performance in the Server and Tools segment (SQL Server 2005, Windows Server), the Client segment (Windows XP OEM licenses), and the Information Worker segment (Microsoft Office). The launch of the Xbox 360 console also significantly boosted revenue in the Home and Entertainment segment.

Microsoft acknowledges open-source software, particularly Linux, as a challenge to its business model. The company states its products offer advantages in security and productivity with a potentially lower total cost of ownership. It is also investing in developing its own software-as-a-service strategies to compete in evolving market models.

Microsoft's strategy for future growth centers on three key areas: strengthening core businesses through new product launches (Windows Vista, 2007 Office system), succeeding in adjacent businesses by offering extensions of existing technologies, and entering new markets, such as online gaming and entertainment services (IPTV). They are also focused on delivering software services and expanding into emerging markets.

Microsoft is actively returning capital to shareholders. The company completed a $30 billion share repurchase program and announced new repurchase authorizations totaling up to $36.2 billion through June 30, 2011. They also declared quarterly cash dividends.