01—Abstract
Summary
Summary of the 10-K filed July 28, 2011. Cited figures are marked; the original filing is the authoritative source.
Microsoft Corporation's fiscal year 2011 10-K filing highlights a year of continued revenue growth, driven significantly by the Entertainment and Devices Division, particularly the Xbox 360 platform and the new Kinect sensor.
The Microsoft Business Division also showed robust performance with strong sales of the Office 2010 system. While the Windows Division experienced a slight revenue dip, this was largely attributed to shifts in the PC market, including a decline in consumer PC sales and a higher proportion of sales in emerging markets with lower average selling prices. The company is making substantial investments in cloud computing, recognizing it as a key area for future growth, as evidenced by the development of offerings like Windows Azure and Office 365.
Financially, Microsoft demonstrated strong operational cash flow and a significant increase in cash and investments. The company continued its commitment to returning value to shareholders through share repurchases and dividends.
The filing also details the strategic alliance with Nokia for Windows Phone, indicating a push into the mobile market. The company is actively managing various risks, including intense competition, intellectual property protection, and the evolving cloud computing landscape, while also navigating ongoing legal and regulatory scrutiny.
02—Key points
Key Highlights
- Revenue increased by 12% to $69.9 billion, driven by strong performance in Entertainment and Devices (up 45%) and Microsoft Business Division (up 16%).
- The Xbox 360 platform, including Kinect, was a major growth driver, with Xbox 360 console shipments up significantly year-over-year.
- Windows Division revenue saw a slight decrease of 2% due to a challenging consumer PC market and shifts in geographic sales mix.
- Investments in cloud computing services like Windows Azure and Office 365 are highlighted as key opportunities for future growth.
- Microsoft's cash, cash equivalents, and short-term investments grew substantially to $52.8 billion.
- The company continued its aggressive share repurchase program, buying back $11.5 billion worth of stock in fiscal year 2011.
- A strategic alliance with Nokia was formed to establish Windows Phone as Nokia's primary smartphone platform, signaling a major push into the mobile OS market.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2011, Microsoft Corp kept $0.33.
- Revenue$69.94B100.0%
- Cost of revenue−$15.58B22.3%
- Gross profit$54.37B77.7%
- Operating costs−$27.20B38.9%
- Operating income$27.16B38.8%
- Interest, other & tax−$4.01B5.7%
- Net income$23.15B33.1%
Where FY2011 revenue went
$69.94B- Net income: $23.15B, 33% of revenue
- Other operating costs: $18.16B, 26% of revenue
- Cost of revenue: $15.58B, 22% of revenue
- R&D: $9.04B, 13% of revenue
- Interest, other & tax: $4.01B, 5.7% of revenue
Kept 33% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2011filed July 28, 2011Financial Statements
FY2011 against FY2010
| Line item | FY2011FY2010 | Change |
|---|---|---|
| Revenue | $69.94B$62.48B | +11.9% |
| Cost of Revenue | $15.58B$12.39B | +25.7% |
| Gross Profit | $54.37B$50.09B | +8.5% |
| R&D Expenses | $9.04B$8.71B | +3.8% |
| Operating Expenses | $42.78B$38.39B | +11.5% |
| Operating Income | $27.16B$24.10B | +12.7% |
| Interest Expense | $295.00M$151.00M | +95.4% |
| Net Income | $23.15B$18.76B | +23.4% |
| EPS (Basic) | $2.73$2.13 | +28.2% |
| EPS (Diluted) | $2.69$2.10 | +28.1% |
| Shares Outstanding (Basic) | 8.49B8.81B | −3.7% |
| Shares Outstanding (Diluted) | 8.59B8.93B | −3.7% |
05—Questions
Frequently Asked Questions
What was Microsoft's primary financial performance in fiscal year 2011?
Microsoft reported a 12% increase in revenue to $69.9 billion and a 13% increase in operating income to $27.2 billion. Net income rose to $23.2 billion, with diluted earnings per share of $2.69. The company also saw a substantial increase in its cash and short-term investments to $52.8 billion.
Which segments contributed most to Microsoft's growth in FY2011?
The Entertainment and Devices Division experienced the most significant growth, up 45%, largely due to strong sales of the Xbox 360 platform and Kinect. The Microsoft Business Division also showed healthy growth of 16%, primarily driven by the 2010 Microsoft Office system and Office 365.
What is Microsoft's strategy regarding cloud computing?
Microsoft views cloud computing as a significant opportunity for future growth. The company is investing heavily in cloud-based solutions and services such as Windows Azure, Office 365, and SQL Azure, aiming to provide customers with scalable and efficient computing resources over the internet.
What are the key risks highlighted in the filing?
Key risks include intense competition across all product lines, challenges in adapting to the cloud-based computing model, the potential for intellectual property infringement claims, security vulnerabilities, and the impact of global economic conditions on IT spending. The company also faces ongoing government scrutiny and litigation.
What was the significance of the Nokia alliance mentioned in the report?
The strategic alliance with Nokia involved Microsoft licensing its Windows Phone platform to Nokia, aiming to significantly boost Windows Phone adoption and market share in the competitive smartphone industry. Nokia also committed to providing mapping and location services to the Windows Phone ecosystem.
06—Continue