MSFT » Topics » Nine months ended March 31, 2009 compared with nine months ended March 31, 2008

These excerpts taken from the MSFT 10-Q filed Apr 23, 2009.

Nine months ended March 31, 2009 compared with nine months ended March 31, 2008

Revenue grew primarily because of increased SQL Server and Windows Server revenue and increased licensing of the 2007 Microsoft Office system, partially offset by decreased revenue from

 

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Windows operating systems as a result of PC market weakness and a continued shift to lower priced netbook PCs. Foreign currency exchange rates accounted for a $705 million or two percentage point increase in revenue.

Operating income decreased primarily reflecting increased headcount-related expenses and cost of revenue, partially offset by decreased general and administrative expenses and increased revenue. Headcount-related expenses, excluding employee severance, increased 13%, reflecting a 9% increase in headcount during the past 12 months and an increase in salaries and benefits for existing headcount. Cost of revenue increased $837 million or 10%, primarily reflecting increased online costs (including traffic acquisition, people, and data center and equipment costs) and increased costs associated with the growth in our consulting services. General and administrative expenses decreased $1.5 billion or 36%, primarily due to decreased costs for legal settlements and legal contingencies, partially offset by increased headcount-related expenses.

Diluted earnings per share declined primarily reflecting decreased other income (expense), partially offset by share repurchases during the past 12 months. Other income (expense) decreased reflecting increased net losses on derivatives and foreign currency remeasurements.

Nine months ended March 31, 2009 compared with nine months ended March 31, 2008

Client revenue decreased primarily as a result of PC market weakness and a continued shift to netbook PCs. OEM revenue decreased $1.1 billion or 11% while OEM license units remained flat. The decline in OEM revenue reflects a nine percentage point decrease in the OEM premium mix to 66%, primarily driven by growth of licenses related to sales of netbook PCs, a decline in premium editions sold to business customers, and changes in geographic mix. Revenue from commercial and retail licensing of Windows operating systems increased $246 million or 13%. Based on our estimates, total worldwide PC shipments from all sources grew approximately 1% to 3%, driven by increased demand in emerging markets.

Client operating income decreased primarily reflecting decreased revenue and increased sales and marketing and research and development expenses. Sales and marketing expenses increased $149 million or 14%, primarily reflecting increased advertising and marketing campaigns. Research and development expenses increased $126 million or 16% as a result of increased headcount-related expenses.

Nine months ended March 31, 2009 compared with nine months ended March 31, 2008

Server and Tools revenue increased reflecting growth in product and services revenue and included a favorable impact from foreign currency exchange rates of $223 million or two percentage points. Server and server application revenue (including CAL) and developer tools revenue increased $981 million or 13%, primarily driven by growth in SQL Server, Windows Server, and CAL Suites revenue. This growth reflects recognition of deferred revenue from previously signed agreements and continued adoption of Windows Platform and applications through SQL Server 2008, Windows Server 2008, and CAL Suites. Consulting and Premier and Professional product support services revenue increased $254 million or 13%, primarily due to revenue from annuity support agreements.

Server and Tools operating income increased primarily due to growth in high-margin product revenue, partially offset by increased cost of revenue and research and development expenses. Cost of revenue increased $176 million or 10%, reflecting the growth in consulting, support, and online services. Research and development expenses increased $175 million or 13%, primarily driven by increased headcount-related expenses.

Nine months ended March 31, 2009 compared with nine months ended March 31, 2008

OSB revenue decreased primarily as a result of decreased access revenue, partially offset by increased online advertising revenue. Access revenue decreased $56 million or 28%, to $141 million, reflecting continued migration of subscribers to broadband or other competitively-priced service providers. Online advertising revenue increased $13 million or 1%, to $1.7 billion.

OSB operating loss increased due to increased cost of revenue and research and development expenses. Cost of revenue increased $543 million or 41%, primarily driven by increased traffic acquisition costs, data center and equipment costs, people costs, and agency expenses. Research and development expenses increased $146 million or 17%, primarily due to increased headcount-related expenses.

Nine months ended March 31, 2009 compared with nine months ended March 31, 2008

MBD revenue increased reflecting increased business revenue, partially offset by a decrease in consumer revenue, and included a favorable impact from foreign currency exchange rates of $453 million or three percentage points. Business revenue increased $894 million or 8%, primarily reflecting growth in volume licensing agreement revenue and included a 4% decrease in Microsoft Dynamics customer billings. The growth in volume licensing agreement revenue primarily reflects the recognition of deferred revenue from previously signed agreements. Consumer revenue decreased $227 million or 8%, primarily as a result of decreased licensing of the 2007 Microsoft Office system through our OEM channel.

MBD operating income increased reflecting increased revenue, partially offset by increased cost of revenue and research and development expenses. Cost of revenue increased $147 million or 21%, primarily driven by FAST. Research and development expenses increased $140 million or 13%, primarily driven by an increase in headcount-related expenses associated with FAST.

Nine months ended March 31, 2009 compared with nine months ended March 31, 2008

EDD revenue decreased primarily due to decreased Xbox 360 platform and PC game revenue and included an unfavorable impact from foreign currency exchange rates of $47 million or one percentage point. Xbox 360 platform and PC game revenue decreased $51 million or 1%, primarily as a result of decreased revenue per Xbox 360 console as a result of price reductions during the past 12 months. We shipped 10 million Xbox 360 consoles during the first nine months of fiscal year 2009 compared with 7.5 million Xbox 360 consoles during the first nine months of fiscal year 2008.

EDD operating income decreased primarily due to increased research and development expenses, partially offset by decreased cost of revenue. Research and development expenses increased $317 million or 30%, primarily reflecting increased headcount-related expenses associated with the Windows Mobile device platform, driven by recent acquisitions. Cost of revenue decreased $60 million or 2%, primarily driven by decreased Xbox 360 platform costs.

Nine months ended March 31, 2009 compared with Nine months ended March 31, 2008

Dividends and interest income decreased primarily reflecting lower interest rates on our fixed-income investments. Net recognized losses on investments increased primarily due to higher other-than-temporary impairments that were partially offset by sales of certain equity investments held in our strategic investments portfolio. Other-than-temporary impairments were $754 million during the nine months ended March 31, 2009, as compared with $248 million during the nine months ended March 31, 2008 and increased primarily due to declines in equity values as a result of continuing deterioration in equity markets. Net losses on derivatives increased primarily due to losses on equity, commodity, and interest rate derivatives in the current period as compared with gains in the prior period. Net losses on foreign currency remeasurements increased due to current period volatility in foreign currency exchange rates. Other expense of $142 million for the nine months ended March 31, 2008 included the correction of several immaterial items from prior periods.

EXCERPTS ON THIS PAGE:

10-Q (7 sections)
Apr 23, 2009

"Nine months ended March 31, 2009 compared with nine months ended March 31, 2008" elsewhere:

CA (CA)
NetSuite (N)
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