01—Abstract
Summary
Summary of the 10-K filed July 31, 2008. Cited figures are marked; the original filing is the authoritative source.
Microsoft Corporation's 2008 10-K filing reveals a company experiencing robust growth across its core segments, driven by strong product adoption and strategic acquisitions.
Revenue saw a significant 18% increase year-over-year, reaching $60.4 billion, with net income growing to $17.7 billiona. This financial performance was underpinned by strong sales in the Client segment (Windows Vista), the Server and Tools division, and the Microsoft Business Division (Office system), all demonstrating double-digit revenue growth. The Entertainment and Devices Division also showed substantial revenue increase, largely due to strong Xbox 360 sales.
Significant investments in research and development, totaling $8.2 billionb, underscore Microsoft's commitment to innovation, particularly in areas like 'software plus services' and consumer technology. The company also continued its aggressive share repurchase program, returning substantial capital to shareholders. While facing ongoing competition and regulatory scrutiny, particularly from the European Commission, Microsoft's financial health remains strong, supported by a substantial cash position and diversified revenue streams.
02—Key points
Key Highlights
- Revenue grew by 18% to $60.42 billion, while net income increased by 32% to $17.68 billion, demonstrating strong top-line and bottom-line performance.
- The 'Client' segment, primarily Windows operating systems, saw a 13% revenue increase, driven by Windows Vista adoption and a growing premium edition mix.
- The 'Server and Tools' segment experienced 18% revenue growth, fueled by strong licensing of Windows Server and SQL Server, along with increasing demand for consulting and support services.
- The 'Online Services Business' revenue surged by 32%, boosted by the acquisition of aQuantive and growth in online advertising, despite continued operating losses.
- The 'Entertainment and Devices Division' reported a significant 34% revenue increase, primarily driven by strong Xbox 360 console and game sales.
- Research and Development spending increased by 15% to $8.16 billion, reflecting continued investment in innovation and future growth opportunities, particularly in 'software plus services'.
- Microsoft repurchased 401.8 million shares of common stock in FY2008, demonstrating a commitment to returning capital to shareholders.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2008, Microsoft Corp kept $0.29.
- Revenue$60.42B100.0%
- Cost of revenue−$11.60B19.2%
- Gross profit$48.82B80.8%
- Operating costs−$26.55B43.9%
- Operating income$22.27B36.9%
- Interest, other & tax−$4.59B7.6%
- Net income$17.68B29.3%
Where FY2008 revenue went
$60.42B- Other operating costs: $18.39B, 30% of revenue
- Net income: $17.68B, 29% of revenue
- Cost of revenue: $11.60B, 19% of revenue
- R&D: $8.16B, 14% of revenue
- Interest, other & tax: $4.59B, 7.6% of revenue
Kept 29% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2008filed July 31, 2008Financial Statements
| Revenue | $60.42B |
| Cost of Revenue | $11.60B |
| Gross Profit | $48.82B |
| R&D Expenses | $8.16B |
| Operating Expenses | $38.15B |
| Operating Income | $22.27B |
| Interest Expense | $106.00M |
| Net Income | $17.68B |
| EPS (Basic) | $1.90 |
| EPS (Diluted) | $1.87 |
| Shares Outstanding (Basic) | 9.33B |
| Shares Outstanding (Diluted) | 9.47B |
05—Questions
Frequently Asked Questions
What were the main drivers of Microsoft's revenue growth in fiscal year 2008?
Microsoft's revenue growth in FY2008 was primarily driven by increased licensing of the 2007 Microsoft Office system, strong sales of the Xbox 360 platform, increased revenue from Windows Server and SQL Server, and the broader adoption of Windows Vista. Foreign currency exchange rates also contributed positively to revenue growth.
How did the 'Online Services Business' perform, and what were the key factors influencing its results?
The 'Online Services Business' (OSB) saw a substantial 32% revenue increase, largely due to the acquisition of aQuantive which bolstered online advertising and agency revenue. While online advertising revenue grew significantly, the segment continued to experience operating losses, primarily due to increased data center and equipment costs, online content expenses, and investments in advertising and platform development.
What is Microsoft's strategy regarding 'software plus services' and innovation?
Microsoft views 'software plus services' as a key opportunity across all its businesses, aiming to combine the power of desktop and server software with the reach of the internet. The company continues to invest heavily in research and development ($8.2 billion in FY2008) to drive innovation in this area, as well as in consumer technology, and expanding its presence on desktop and server platforms with new products and services.
What were the major risk factors highlighted in the filing, and how might they impact the company?
Key risks identified include challenges to Microsoft's license-based business model from open-source software and 'software plus services' alternatives, intense competition across all product lines, difficulties in protecting intellectual property, potential security vulnerabilities in its products, and ongoing government litigation and regulatory scrutiny. These factors could potentially reduce revenues, compress operating margins, and increase costs.
06—Continue