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

Company Overview

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.

Business and Financial Metrics

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.

Products and Service Offerings

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