10-QPeriod: Q3 FY2009

MICROSOFT CORP Quarterly Report for Q3 Ended Mar 31, 2009

Filed April 23, 2009For Securities:MSFT

Summary

Microsoft Corporation (MSFT) reported its financial results for the fiscal quarter ending March 31, 2009, amidst a challenging global economic environment. Revenue for the quarter saw a decline of 6% year-over-year to $13.65 billion, primarily impacted by weakness in the PC market and reduced consumer and business spending. Despite the revenue dip, operating income saw a modest increase of 3% to $4.44 billion, driven by cost management initiatives, including reductions in general and administrative and sales and marketing expenses. This improvement was partially offset by increased cost of revenue and employee severance charges related to a workforce reduction program. Diluted earnings per share decreased by 30% to $0.33. This decline was largely attributable to a significant decrease in "Other income (expense)", mainly due to higher other-than-temporary impairments on investments and losses on investment sales, as well as an increase in the provision for income taxes compared to the prior year. The company highlighted its ongoing focus on managing expenses and delivering value to customers. Microsoft also announced a workforce reduction of up to 5,000 positions as part of a resource management program aimed at controlling discretionary operating expenses.

Financial Highlights

32 data points
Beta

Revenue

$13.65B

79.4% Gross Margin

Net Income

$2.98B

21.8% Net Margin

EPS (Diluted)

$0.33

Cash & Equivalents

$7.29B

Free Cash Flow

$5.41B

Financial Statements
Beta
Revenue$13.65B
Cost of Revenue$2.81B
Gross Profit$10.83B
R&D Expenses$2.21B
Operating Expenses$9.21B
Operating Income$4.44B
Net Income$2.98B
EPS (Basic)$0.33
EPS (Diluted)$0.33
Shares Outstanding (Basic)8.89B
Shares Outstanding (Diluted)8.90B

Key Highlights

  • 1Total revenue for the quarter was $13.65 billion, a decrease of 6% compared to the same period last year, reflecting global economic weakness and PC market slowdown.
  • 2Operating income increased by 3% to $4.44 billion, benefiting from reduced operating expenses, particularly in general and administrative and sales and marketing.
  • 3Diluted earnings per share (EPS) significantly decreased by 30% to $0.33, primarily due to lower other income and higher income tax provisions.
  • 4The company announced a resource management program to reduce discretionary operating expenses and employee headcount by up to 5,000 positions, recording $290 million in severance charges for the quarter.
  • 5Cash and cash equivalents, along with short-term investments, remained strong at $25.34 billion, demonstrating robust liquidity.
  • 6The Server and Tools segment showed resilience with a revenue increase of 7% and operating income up 24%, indicating strength in enterprise solutions.

Frequently Asked Questions

The primary driver for the revenue decrease was the continued weakness in the global PC market and the broader recessionary economic environment, which led to reduced demand for Windows operating systems and other PC-related products. Factors like the shift towards lower-priced netbook PCs and decreased demand from businesses also contributed.

Operating income increased due to significant cost management efforts. Microsoft reduced general and administrative expenses by 61% and sales and marketing expenses by 9%. These reductions, driven by decreased legal settlement costs and streamlined marketing campaigns, more than offset the impact of lower revenue, increased cost of revenue, and employee severance charges.

The substantial decrease in diluted EPS was mainly due to a sharp decline in 'Other income (expense)'. This was primarily caused by higher other-than-temporary impairments on investments, resulting from declines in equity values amid deteriorating equity markets, and losses on investment sales. Additionally, the provision for income taxes increased year-over-year, partly due to the resolution of a tax examination in the prior year.

Microsoft expects current trends to continue in the fourth quarter of fiscal year 2009, with ongoing weakness in PC and server hardware markets and non-annuity businesses. To manage these conditions, the company intends to further reduce discretionary operating expenses, employee headcount (with an additional 3,400 employees expected to leave by June 30, 2010), and capital expenditures. They will also forgo merit increases for employees in fiscal year 2010. Microsoft will continue to focus on delivering value and managing expenses.