01—Abstract
Summary
Summary of the 10-K filed July 28, 2016. Cited figures are marked; the original filing is the authoritative source.
Microsoft's 2016 10-K filing reveals a company in transition, heavily focused on its "mobile-first, cloud-first" strategy under CEO Satya Nadella.
While overall revenue saw a slight decrease primarily due to the impact of Windows 10 revenue deferrals and foreign currency headwinds, the Intelligent Cloud segment demonstrated robust growth, with Azure revenue more than doubling. The company continued its shift from traditional software licensing to cloud-based services, as evidenced by the significant growth in Office 365 subscriptions and Dynamics CRM Online. However, the report also highlights significant challenges and restructuring efforts within the phone business, leading to substantial impairment and restructuring charges.
Key strategic initiatives for the fiscal year included reinforcing productivity and business processes, building the intelligent cloud platform, and creating a more personal computing experience. The company's investment in research and development remained substantial, underscoring its commitment to innovation across these strategic pillars. While facing intense competition, Microsoft's diversified product portfolio, global reach, and ongoing cloud transformation position it for continued evolution in the technology landscape.
02—Key points
Key Highlights
- Revenue decreased by 9% year-over-year to $85.32 billion, primarily impacted by a $6.6 billion net revenue deferral from Windows 10 and a $3.8 billion unfavorable foreign currency impact.
- The Intelligent Cloud segment showed strength with a 6% revenue increase to $25.04 billion, driven by 113% growth in Azure revenue and increased Enterprise Services revenue.
- More Personal Computing revenue declined by 6% to $40.46 billion, mainly due to a significant decrease in phone revenue (down 56%) following strategic shifts, partially offset by growth in search advertising and gaming.
- Productivity and Business Processes segment revenue remained relatively flat at $26.49 billion, with slight growth in Office Commercial and Dynamics, but offset by a decline in Office Consumer.
- Research and development expenses remained stable at $12.0 billion, representing 14% of revenue, highlighting continued investment in innovation.
- The company announced a definitive agreement to acquire LinkedIn for $26.2 billion, signaling a major strategic move to enhance its cloud and business process offerings.
- Significant restructuring and impairment charges related to the phone business continued, impacting overall profitability, though at a reduced level compared to the prior fiscal year.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2016, Microsoft Corp kept $0.23.
- Revenue$91.15B100.0%
- Cost of revenue−$32.78B36.0%
- Gross profit$58.37B64.0%
- Operating costs−$32.30B35.4%
- Operating income$26.08B28.6%
- Interest, other & tax−$5.54B6.1%
- Net income$20.54B22.5%
Where FY2016 revenue went
$91.15B- Cost of revenue: $32.78B, 36% of revenue
- Net income: $20.54B, 23% of revenue
- Other operating costs: $20.31B, 22% of revenue
- R&D: $11.99B, 13% of revenue
- Interest, other & tax: $5.54B, 6.1% of revenue
Kept 23% as net incomeR&D $11.99B · 13%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2016filed July 28, 2016Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Revenue | $91.15B$93.58B | −2.6% |
| Cost of Revenue | $32.78B$33.04B | −0.8% |
| Gross Profit | $58.37B$60.54B | −3.6% |
| R&D Expenses | $11.99B$12.05B | −0.5% |
| Operating Income | $26.08B$18.16B | +43.6% |
| Interest Expense | $1.24B$781.00M | +59.2% |
| Net Income | $20.54B$12.19B | +68.4% |
| EPS (Basic) | $2.59$1.49 | +73.8% |
| EPS (Diluted) | $2.56$1.48 | +73.0% |
| Shares Outstanding (Basic) | 7.92B8.18B | −3.1% |
| Shares Outstanding (Diluted) | 8.01B8.25B | −2.9% |
05—Questions
Frequently Asked Questions
What was the overall financial performance of Microsoft in fiscal year 2016?
Microsoft's revenue decreased by 9% to $85.32 billion in fiscal year 2016 compared to the previous year. This decline was largely attributed to the revenue deferral policy for Windows 10 and unfavorable foreign currency exchange rates. Despite the revenue dip, operating income saw an 11% increase to $20.18 billion, primarily due to a significant reduction in impairment, integration, and restructuring expenses compared to fiscal year 2015.
How did Microsoft's different business segments perform?
The Intelligent Cloud segment was a key growth driver, with revenue increasing by 6% to $25.04 billion, fueled by a 113% surge in Azure revenue. The Productivity and Business Processes segment remained stable at $26.49 billion in revenue. The More Personal Computing segment experienced a 6% revenue decline to $40.46 billion, largely impacted by strategic adjustments in the phone business, though search advertising and gaming showed growth. Corporate and Other activities resulted in an operating loss, mainly due to the Windows 10 revenue deferral.
What are the significant strategic initiatives or events mentioned in the report?
Microsoft continued its strategic focus on a 'mobile-first, cloud-first' world. Key initiatives included reinventing productivity and business processes with offerings like Office 365, building the intelligent cloud platform with Azure, and creating more personal computing experiences. A major event was the announcement of the acquisition of LinkedIn for $26.2 billion. The company also continued restructuring efforts within its phone business.
What were the major expenses and investments for Microsoft in fiscal year 2016?
Microsoft maintained significant investment in research and development, spending $12.0 billion (14% of revenue). Major expenses also included costs associated with its cloud infrastructure (datacenters) and employee compensation. Notably, impairment, integration, and restructuring expenses decreased significantly from the prior year, primarily related to the phone business.
06—Continue