What drove the revenue growth in the second quarter of fiscal year 2002?

Revenue growth was primarily driven by the successful launch of the Xbox video game system and the licensing of Microsoft Windows XP Home and Professional operating systems. Additionally, sales of Windows 2000 Professional and Microsoft SQL Server also contributed to the revenue increase.

Why did net income decline despite revenue growth?

Net income declined due to a significant increase in operating expenses. Cost of revenue rose substantially, partly due to the costs associated with the Xbox launch. General and administrative expenses also saw a large increase, significantly impacted by a $660 million charge for a contingent liability related to overcharge class action lawsuits. Research and development, and sales and marketing expenses also saw increases, though somewhat offset by factors like the discontinuation of goodwill amortization.

What is the company's financial position regarding cash and investments?

Microsoft maintains a very strong liquidity position, with cash and short-term investments totaling $38.23 billion as of December 31, 2001. Cash flow from operations was also robust, increasing to $6.95 billion for the first six months of fiscal 2002.

Are there any significant legal or regulatory issues impacting the company?

Yes, Microsoft is involved in several significant legal proceedings. This includes the ongoing U.S. v. Microsoft antitrust case, where a settlement has been reached with the U.S. and nine states, but nine other states and the District of Columbia continue to litigate remedies. The company is also facing proceedings from the European Commission regarding interoperability and licensing, and numerous overcharge class action lawsuits, one of which resulted in a $660 million contingent liability charge. Additionally, a new antitrust lawsuit was filed by Netscape Communications Inc. in January 2002.

MSFT 10-Q Quarterly Report Q2 FY2002 — Revenue, Net Income, EPS

Summary

Microsoft Corporation's (MSFT) fiscal second quarter 2002 report, filed February 8, 2002, for the period ending December 30, 2001, reveals a mixed financial performance. While revenue showed a healthy increase of 18% year-over-year to $7.74 billion, driven by strong sales of Windows XP and the new Xbox gaming console, net income experienced a decline. Net income for the quarter was $2.28 billion, down from $2.62 billion in the prior year's comparable quarter, reflecting higher operating expenses, particularly in cost of revenue and general administrative costs. The company also reported a significant investment loss of $427 million for the six-month period, largely due to write-downs of investments in the European cable and telecommunications sectors, a contrast to the investment income seen in the prior year. Despite the dip in net income, Microsoft maintains a robust financial position with total cash and short-term investments of $38.23 billion. The company's balance sheet shows growth in total assets and stockholders' equity. However, investors should note the increase in general and administrative expenses, partly due to a significant charge for a contingent liability related to overcharge class action lawsuits. The company continues to navigate legal and regulatory challenges, including the ongoing antitrust cases and European Commission investigations, while also investing in future growth areas like Xbox and the .NET initiative.

Key Highlights

1Revenue increased by 18% year-over-year to $7.74 billion for the quarter, driven by Windows XP and Xbox sales.
2Net income for the quarter decreased to $2.28 billion from $2.62 billion in the prior year, impacted by increased operating expenses.
3Total cash and short-term investments remained strong at $38.23 billion as of December 31, 2001.
4The company reported a significant investment loss of $427 million for the six-month period, contrasting with investment income in the prior year.
5General and administrative expenses saw a substantial increase, including a $660 million charge for a contingent liability related to class action lawsuits.
6The launch of the Xbox video game system and Windows XP operating systems were key growth drivers for the quarter.
7The company is actively managing its legal and regulatory landscape, with ongoing developments in antitrust litigation.

MICROSOFT CORP Quarterly Report for Q2 Ended Dec 31, 2001

Summary

Key Highlights

Frequently Asked Questions