10-QPeriod: Q1 FY2014

MICROSOFT CORP Quarterly Report for Q1 Ended Sep 30, 2013

Filed October 24, 2013For Securities:MSFT

Summary

Microsoft Corporation (MSFT) reported strong financial results for the first quarter of fiscal year 2014, ending September 30, 2013. Revenue increased by 16% year-over-year to $18.5 billion, while operating income saw a substantial 19% rise to $6.3 billion. This growth was driven by robust performance in the Commercial Licensing and Commercial Other segments, as well as an increase in Devices and Consumer Hardware revenue, notably from Surface products. Diluted earnings per share also improved by 17% to $0.62, reflecting the company's operational efficiency and sales growth. The company continues to invest in its "devices and services" strategy, with significant R&D expenditures and strategic acquisitions, such as the announced acquisition of Nokia's Devices & Services business. While this strategic shift requires substantial investment and presents competitive challenges, Microsoft's strong cash position and diversified revenue streams provide a solid foundation. The company also continues its commitment to returning capital to shareholders through share repurchases and dividends.

Financial Highlights

54 data points
Beta

Revenue

$18.53B

72.2% Gross Margin

Net Income

$5.24B

28.3% Net Margin

EPS (Diluted)

$0.62

Total Assets

$142.35B

Cash & Equivalents

$4.02B

Free Cash Flow

$6.97B

Financial Statements
Beta
Revenue$18.53B
Cost of Revenue$5.14B
Gross Profit$13.38B
R&D Expenses$2.77B
Operating Expenses$7.05B
Operating Income$6.33B
Interest Expense$118.00M
Net Income$5.24B
EPS (Basic)$0.63
EPS (Diluted)$0.62
Shares Outstanding (Basic)8.34B
Shares Outstanding (Diluted)8.43B

Key Highlights

  • 1Revenue increased 16% year-over-year to $18.53 billion.
  • 2Operating income rose 19% to $6.33 billion.
  • 3Diluted earnings per share (EPS) increased 17% to $0.62.
  • 4Devices and Consumer Hardware revenue grew significantly, driven by Surface product sales.
  • 5Commercial Licensing revenue saw a 7% increase, indicating strength in enterprise offerings.
  • 6The company announced its definitive agreement to acquire Nokia's Devices & Services business for approximately $7.2 billion.
  • 7Microsoft returned $3.4 billion to shareholders through financing activities, including debt repayments and common stock repurchases, while also paying $2.3 billion in dividends.

Frequently Asked Questions

Revenue growth was primarily driven by higher revenue in Commercial Licensing, Devices and Consumer Hardware (notably Surface products), and Commercial Other segments. The overall increase was also influenced by the timing of revenue deferrals related to product launches.

The company is actively investing in this strategy, as evidenced by R&D expenditures and the significant announced acquisition of Nokia's Devices & Services business. Revenue growth in D&C Hardware, particularly from Surface, and the continued expansion of cloud services (Commercial Other) indicate progress, though it also presents ongoing competitive and execution challenges.

Microsoft announced an agreement to acquire Nokia's Devices & Services business for approximately $7.2 billion in cash. While the acquisition is expected to close in early 2014, Microsoft provided Nokia with a €1.5 billion ($2.0 billion) financing in the form of convertible notes as part of the deal. The company intends to use overseas cash resources to fund the acquisition.

Microsoft returned capital to shareholders through a combination of financing activities. During the quarter, net cash used in financing was $3.4 billion, which included $2.19 billion for common stock repurchases and $1.92 billion for cash dividends paid. The company also approved a new $40.0 billion share repurchase program effective October 1, 2013.