What was the primary driver for the decrease in operating income?

The primary driver for the significant decrease in operating income was the substantial increase in legal settlement costs and legal contingencies. This included a €899 million fine imposed by the European Commission and costs associated with antitrust and unfair competition consumer class actions and intellectual property claims.

Why did revenue from the Client and Microsoft Business divisions decrease compared to the prior year?

The decrease in revenue for the Client and Microsoft Business divisions was largely due to a significant amount of revenue being recognized in the prior year's quarter related to the 'Express Upgrade to Windows Vista' and 'Microsoft Office Technology Guarantee' programs. This created a difficult comparison for the current quarter.

What is the status of the proposed acquisition of Yahoo!

Microsoft made a proposal to acquire Yahoo! Inc. for approximately $44.6 billion on January 31, 2008. However, Yahoo's board of directors rejected the offer, stating it undervalued the company and was not in the best interests of its shareholders. The acquisition is not assured to be completed.

How is Microsoft managing its substantial cash reserves?

Microsoft maintains a strong financial position with $26.3 billion in cash and short-term investments as of March 31, 2008. The company continues to utilize its cash for strategic investments, including acquisitions like aQuantive and Fast Search & Transfer ASA, and for share repurchases under its authorized program. It also continues to pay regular quarterly dividends.

MSFT 10-Q Quarterly Report Q3 FY2008 — Revenue, Net Income, EPS

Summary

Microsoft Corporation's (MSFT) Q3 FY2008 report for the period ending March 31, 2008, shows a slight increase in revenue to $14.45 billion, largely driven by the Server and Tools, and Entertainment and Devices divisions, as well as strong online advertising growth. However, operating income saw a significant decline of 33% to $4.41 billion, primarily due to substantial legal settlement costs, including a €899 million fine from the European Commission, and increased headcount-related expenses. Diluted EPS also decreased by 6% to $0.47. The company highlighted strong performance in Server and Tools, with an 18% revenue increase, and significant growth in the Entertainment and Devices division, driven by Xbox 360 sales. The Online Services Business continued to show strong revenue growth, boosted by the aQuantive acquisition, though it remains in an operating loss. The Client and Microsoft Business divisions experienced revenue declines compared to the prior year, largely due to the significant revenue recognition in the prior year from Windows Vista and Office 2007 promotions. Despite the increase in operating expenses and legal costs, Microsoft maintains a strong balance sheet with $26.3 billion in cash and short-term investments, and continues its share repurchase program.

Financial Highlights

5 data points

Beta

Revenue

$14.45B

0.8% Gross Margin

Net Income

$4.39B

0.3% Net Margin

EPS (Diluted)

$0.47

Financial Statements

Beta

Revenue	$14.45B
Gross Profit	$11.94B
Net Income	$4.39B
EPS (Basic)	$0.47
EPS (Diluted)	$0.47

Key Highlights

1Revenue for the quarter reached $14.45 billion, a slight increase of 0.4% year-over-year, with the nine-month revenue up 18% to $44.58 billion.
2Operating income declined significantly by 33% to $4.41 billion for the quarter, impacted by a €899 million European Commission fine and increased legal settlement costs.
3Diluted Earnings Per Share (EPS) decreased by 6% to $0.47 for the quarter, compared to $0.50 in the prior year.
4The Server and Tools division showed robust growth, with revenue up 18% to $3.26 billion.
5The Entertainment and Devices Division experienced strong revenue growth of 68% to $1.58 billion, driven by increased Xbox 360 platform sales.
6Microsoft announced a proposed acquisition of Yahoo! Inc. for approximately $44.6 billion, which was subsequently rejected by Yahoo's board.
7Cash and cash equivalents and short-term investments stood at a strong $26.3 billion as of March 31, 2008.

MICROSOFT CORP Quarterly Report for Q3 Ended Mar 31, 2008

Summary

Financial Highlights

Key Highlights

Frequently Asked Questions