10-QPeriod: Q2 FY2008

MICROSOFT CORP Quarterly Report for Q2 Ended Dec 31, 2007

Filed January 24, 2008For Securities:MSFT

Summary

Microsoft Corporation's (MSFT) Form 10-Q for the quarter ended December 31, 2007, showcases robust financial performance, driven significantly by the successful launch and adoption of Windows Vista and the 2007 Microsoft Office suite. The company reported substantial revenue and operating income growth year-over-year, indicating strong market demand for its core products. Key financial metrics demonstrate healthy operational efficiency, with notable increases in diluted earnings per share. The company's balance sheet remains strong, supported by significant cash and short-term investments, despite substantial share repurchases and dividend payouts. Investments in research and development and strategic acquisitions, such as aQuantive, highlight Microsoft's commitment to innovation and expansion into new digital marketing areas, signaling a forward-looking strategy aimed at long-term growth.

Financial Highlights

5 data points
Beta

Revenue

$16.37B

78.4% Gross Margin

Net Income

$4.71B

28.8% Net Margin

EPS (Diluted)

$0.50

Financial Statements
Beta
Revenue$16.37B
Gross Profit$12.82B
Net Income$4.71B
EPS (Basic)$0.50
EPS (Diluted)$0.50

Key Highlights

  • 1Revenue for the three months ended December 31, 2007, increased by 30% to $16.37 billion, and for the six months ended December 31, 2007, increased by 29% to $30.13 billion, compared to the prior year periods.
  • 2Operating income saw significant growth, rising 87% to $6.48 billion for the three-month period and 56% to $12.40 billion for the six-month period.
  • 3Diluted earnings per share (EPS) surged by 92% to $0.50 for the quarter and increased by 56% to $0.95 for the six months, reflecting strong profitability.
  • 4The Client segment, primarily driven by Windows Vista licensing, experienced robust revenue growth of 68% for the quarter and 44% for the six months.
  • 5The Microsoft Business Division, boosted by the 2007 Microsoft Office system, reported a 37% revenue increase for the quarter and a 29% increase for the six months.
  • 6The company continued its aggressive share repurchase program, buying back shares worth $4.1 billion in the quarter and $6.4 billion in the first six months, underscoring a commitment to returning value to shareholders.
  • 7Microsoft completed the acquisition of aQuantive for $5.9 billion, a strategic move to bolster its Online Services Business and digital marketing capabilities.

Frequently Asked Questions

The substantial revenue and profit growth were primarily driven by strong licensing sales of Windows Vista and the 2007 Microsoft Office system, which were released to consumers in January 2007. Increased sales of Windows Server, SQL Server, and Xbox 360 platform products also contributed significantly.

Microsoft maintained a strong financial position with $21.1 billion in cash and short-term investments as of December 31, 2007. The company continued to actively repurchase its shares, demonstrating a commitment to shareholder returns, while also investing in strategic acquisitions like aQuantive and maintaining R&D investments.

Key risks include intense competition from both established players and emerging open-source and software-as-a-service (SaaS) models, the difficulty of protecting intellectual property, potential patent infringement claims, security vulnerabilities in products, and ongoing government litigation and regulatory scrutiny in various jurisdictions. Economic slowdowns are also noted as a potential concern.

Microsoft acquired aQuantive for $5.9 billion in August 2007. This acquisition is intended to significantly enhance Microsoft's Online Services Business, particularly in the area of digital marketing and advertising, positioning the company for future growth in this evolving digital landscape.