MICROSOFT CORPORATION
(NASDAQ: MSFT) is the world's largest software maker
by revenue, with $58.43 billion of revenue in FY2009. Its software products run the gamut from
operating systems for servers, personal computers, mobile phones, and other
devices to software development tools, video games, and hardware such as the
Xbox 360 and Zune.
Despite the successes of Apple’s client
operating system and client and server systems under Linux and other unix-like
operating systems, Windows not only continues to dominate its rivals in
operating systems but is also growing market share. With the release of Windows
7 in December 2009, Windows finished the year with roughly a 92% market share,
as well as an 80% market share among enterprise customers and a 63% market
share in web browsing (through Internet Explore
In 2008, Standard & Poor's, the ratings
agency, upgraded the stock to AAA, the highest possible rating. Microsoft was
the first company to receive the rating in a decade. Only 5 other corporations
in the United States held such a rating at that time
Co-founded in 1975 by
Bill Gates and Paul Allen, Microsoft Corporation has built a dominant position
the computer industry. Its 1992 introduction of the Windows 3.1 operating
system created a successful recurring revenue source for the company, as in
subsequent years, the highly successful releases of Windows 95 and 98
consolidated its industry lead, as did well-received updated Microsoft Office
software. Today, multi-national Microsoft remains at the head of the industry,
its desktop operating system market share exceeding 90% and its global annual
revenue of more than $44 billion. While the bulk of Microsoft’s profits derive
from , a significant minority of its profits is
derived from consumers, and Microsoft is a common name both at home and work.
Microsoft reported a record revenue of roughly
$19 billion for 2Q10, a 14% increase from 2Q09. Top-line growth was driven by
the well-hyped release of its new operating system, Windows 7, which was
launched globally October 2009 and sold more than 60 million copies in 2Q10,
making it the fastest selling operating system in history It was also boosted
by a 15-17% YoY increase in unit PC sales, as well as the sale of 5.2 million
XBOX 360 consoles . Its Online Services
Division witnessed a 5% YoY decline, hurt by a 2% decline in online advertising
revenue and the negative impact international rate declines took on its display
revenue. However, the real story in 2Q10 was MSFT's ability to simultaneously
cut costs, which resulted in a net income of $6.66 billion for the quarter, a
60% increase over 2Q09. This disciplined cost-cutting dates back to FY2009,
when MSFT reduced general and administrative expenses by 28% to offset the weakness
in the global PC and server market that was plaguing its revenue growth [ The company also managed to generate $5.0
billion in operating cash flow, $4.8 billion of which it returned to investors.
Microsoft’s products and service offerings fall
into five divisions or business sectors:
§ Client (28% of revenue and 45% of net income in
FY2009: The client segment,
accounting for approximately 28% of total revenue, includes sales and marketing
expenses for the Windows operating system. 80% of this revenue is from the sale
of products with pre-install versions of Windows operating systems. In an effort to strengthen its grip on the PC
market, Microsoft launched Windows 7 on October 22, 2009 replacing its
disappointing Vista, which had been released three years earlier. Visa
frustrated many home users and turned off business customers due to its
sluggishness, intrusiveness, and incompatibility with many gadgets. Windows 7
is faster, less cluttered, and has new touch-screen features, while keeping
Vista’s security and stability In June
2010, Microsoft announced that Windows 7 was the fastest selling operating
system in history, having sold more than 150 million licenses since its debut,
a rate of approximately "7 copies per second."
§ Server and Tools - Products for IT Professionals
(22% of revenue and 16% of net income in FY2009): The Server and Tools segment, which accounts for
approximately 22% of Microsoft’s revenue, develops and markets software server
products, services, and solutions such as Windows Server 2008 and Visual Studio
2008. Approximately 45% of Server and Tools revenue comes from multi-year
licensing agreements, 25% through fully packaged product and transactional
volume licensing programs, and 10% from licenses sold to original equipment
manufacturers (OEMs).
§ Business (32% of revenue and 42% of net income
in FY2009): Microsoft Business
Division (“MBD”), accounting for approximately 32% of Microsoft’s revenue,
includes the Microsoft Office system (about 90% of MBD revenue) and Microsoft
Dynamics business solutions. Approximately 80% of MBD revenue is generated from
sales to businesses, the rest being derived from sales to consumers.
§ Online Services (5% of revenue and -4% of net
income in FY2009): The Online Services
Business (“OSB”), approximately 5% of Microsoft’s revenue, consists of an
on-line advertising platform with offerings for both publishers and
advertisers, personal communications services such as email and instant
messaging, online information offerings such as Live Search, and the MSN
portals and channels around the world. In 2008, this included new releases of Windows Live Search, the
Windows Live suite of applications and services, and their MSN Video Service.
Revenue comes primarily from
§ Entertainment and Devices (13% of revenue and 1%
of net income in FY2009): Approximately 13% of
total revenue, Entertainment and Devices is the most high-profile aspect of
Microsoft’s expansion. E&D includes the highly successful a large collection of Microsoft-licensed video
and computer game titles (including Halo and the Age of Empires series),
Windows Mobile and Automotive (operating systems for mobile and car navigation
devices), and the Zune MP3 playerIn June 2010, Microsoft released a slimmer
version of the console known as the Xbox 360 Slim, in an effort to lower its
production costs and compete with the smaller consoles of rivals such as who had great success with the launch of its
re-designed Play Station The company also said that starting November 2010,
Xbox 360 releases will come equipped with Kinect, a body movement-sensitive
add-on peripheral
In May 2010, Microsoft
released two phones under the Microsoft brand in an attempt to target teenagers
and facilitate social networking access. In contrast to focusing on building
its phone around third party applications, it strives for simplicity by merely
integrating popular social features, such as Facebook, Twitter, RSS feeds, etc These
phones, manufactured by and distributed through wireless carrier were not compatible with
applications written for the previous operating systems, in an effort to
maximize functionality and user friendlinessLess than two months in 