First Quarter Fiscal Year 2011 ResultsOctober 28, 2010
This presentation contains statements that are forward-looking. These
statements are based on current expectations and assumptions that are
subject to risks and uncertainties which may cause actual results to
differ materially because of factors in this presentation or discussed in
today’s press release, in the management’s discussion and analysis
section of the company’s most recent Form 10-K, Forms 10-Q or in other
reports and filings with the Securities and Exchange Commission. We
undertake no duty to update or revise any forward-looking statements,
whether as a results of new information, future events, or otherwise.
Agenda
Quarterly Overview & Quarter Results
Business Segment Financial Overview
Outlook
Appendix
Quarterly Overview
Record first-quarter revenue, OI and EPSDouble-digit revenue and EPS growthBookings growth of 24%Operating margin expansion due to continued cost managementHealthy demand from both businesses and consumers
Product momentum with solid execution led to record results
Financial Summary – FY11 Q1
GAAP revenue: $16.2 billion13% growth over the comparable period last year*
Record GAAP operating income: $7.1 billion20% growth over the comparable period last year*
GAAP diluted earnings per share: $0.6219% growth over the comparable period last year*
Record operating cash flow of $8.2 billion34% growth over the comparable period last year
$5.4 billion returned to investors$4.0 billion of shares repurchased; $1.4 billion of dividends declared
*Adjusted for fiscal 2010 Windows 7 tech guarantee revenue deferral (“Windows 7 deferral”)
FY11 Q1 Metrics
Unearned Revenue $13.9B
Contracted Not Billed >$16B
PC Unit Growth 9% - 11%
OEM Premium Mix 71%Consumer Premium Mix 40%
31%Business Premium Mix
Agenda
Quarterly Overview & Quarter Result
Business Segment Financial Overview
Outlook
Appendix
Windows & Windows Live Division
Another quarter of double-digit revenue growthPC market grew 9%-11%OEM revenue grew 11%*Business PC refresh continuesEnterprise adoption of Windows 7 accelerating240M+ Windows 7 licenses sold to date
FY10 Q1 FY10 Q2 FY10 Q3 FY10 Q4 FY11 Q1$0
$1
$2
$3
$4
$5
$6
$7
$8
$4.35
$5.48
$4.66 $4.78 $4.79
GAAP revenue $B Windows 7 deferral $B
$2.88
10% Y/Y Increase*
Continued Windows 7 demand drives strong growth
GAAP revenue portion related to Windows 7 deferred revenue recognition
$7.19
We have recast certain prior period amounts within this presentation to conform to the way we internally managed and monitored segment performance during the current fiscal year. Reported and recast results are included in the appendix.
*Adjusted for the Windows 7 deferral
Windows OEM Revenue Bridge
PC Market 10%
OEM Revenue Growth Drivers (%)
FY11 Q1 Growth
Hardware Segment Mix 2%
Windows Attach and Inventory -1 %
Upsell and Channel Dynamics 1%
Other OEM Revenue Adjustments -1%
Total OEM Revenue Growth 11 %*
*Adjusted for the Windows 7 deferral
Server & Tools
12% revenue growthMulti-year agreement revenue growth of 10% Non-annuity revenue growth of 15% Windows Server premium mix
grew 4 points; virtualization suites grew > 50%Windows Azure subscriptions up 40% sequentially FY10 Q1 FY10 Q2 FY10 Q3 FY10 Q4 FY11 Q1
$0
$1
$2
$3
$4
$5
$3.55
$3.97$3.71
$4.15$3.96
GAAP revenue $B
12% Y/Y Increase
Datacenter, developer & cloud drive double-digit growth
We have recast certain prior period amounts within this presentation to conform to the way we internally managed and monitored segment performance during the current fiscal year. Reported and recast results are included in the appendix.
Online Services Division
Revenue growth 8% Online advertising revenue grew 13%, primarily driven by growth in searchBing continues to gain market share in the USYahoo! search integration milestones achieved
FY10 Q1 FY10 Q2 FY10 Q3 FY10 Q4 FY11 Q1$0.0
$0.1
$0.2
$0.3
$0.4
$0.5
$0.6
$0.7
$0.49
$0.58 $0.57 $0.57$0.53
GAAP revenue $B
8% Y/Y
Increase
Bing revenue growth continues to outperform the market
We have recast certain prior period amounts within this presentation to conform to the way we internally managed and monitored segment performance during the current fiscal year. Reported and recast results are included in the appendix.
Microsoft Business Division
Revenue growth 14% Consumer growth 26%Business growth 11%
Double-digit growth for SharePoint, Lync, Dynamics CRM, and ExchangeTripled number of business customers using cloud servicesOffice 365 announced
FY10 Q1 FY10 Q2 FY10 Q3 FY10 Q4 FY11 Q1$0
$1
$2
$3
$4
$5
$6
$4.51$4.85
$4.34
$5.37$5.13
GAAP revenue $B
14% Y/Y Increase
Office 2010 momentum drives MBD growth
$4.65*
We have recast certain prior period amounts within this presentation to conform to the way we internally managed and monitored segment performance during the current fiscal year. Reported and recast results are included in the appendix.
*Adjusted for the Office 2010 deferral
Entertainment & Devices Division
Xbox 360 console units up 38% Continued strong Xbox Live membership growthWindows Phone 7 launched in Europe and Asia on Oct 21stWindows Phone 7 US and Canada launch Nov 8thKinect launch Nov 4th
FY10 Q1 FY10 Q2 FY10 Q3 FY10 Q4 FY11 Q1$0
$1
$2
$3
$1.41
$2.40
$1.20 $1.15
$1.80
GAAP revenue $B
27% Y/Y Increase
Strong quarter & exciting outlook
We have recast certain prior period amounts within this presentation to conform to the way we internally managed and monitored segment performance during the current fiscal year. Reported and recast results are included in the appendix.
Business Productivity Online Services
3X number of customers Y/YAvailable in 40 countries70% of seats new customers to MicrosoftState of California, State of Minnesota, New York City, DuPont, and Godiva customer wins
Office 365 Announced
Next generation cloud productivity serviceOffice Professional, Exchange, SharePoint, and LyncOffice 365 for small business priced at $6; full offering $24Available worldwide next year
Consumer Offerings
Bing powering Yahoo! search in US & CanadaBing search queries almost doubled since launch>20M Office Web App usersXbox Live fall update coming in Q2Windows Live Essentials 2011 launched
Windows Azure
40% sequential subscriber growthPlatform enhancements announced at October PDC that help customers build new applications and migrate existing applications to Azure
Microsoft Cloud Momentum
Agenda
Quarterly Overview & Quarter Result
Business Segment Financial Overview
Outlook
Appendix
Segment Revenue FY11 Q2
OutlookIn-line with PC market growth after normalizing for the FY10 Windows 7 launch spike [$600M] and the deferral impact [$1.7B]
Microsoft Business Division
Consumer & Business non-annuity revenue in-line with PC market growth; multi-year license revenue to grow mid to high-single digits
Entertainment & Devices Revenue growth roughly 30%
Server & Tools
Non-annuity to track with hardware shipments; multi-year licensing revenue should grow high-single digits; Services should grow mid-single digits
Online Services Division
Online advertising revenue to outperform the online advertising market
In-line with PC market growth after normalizing for the FY10 Windows 7 launch spike [$700M] and the deferral from FY09 [$300M]
FY11
Non-annuity to track with hardware shipments; multi-year licensing revenue should grow low-double digits; Services should grow mid-single digitsConsumer & Business non-annuity revenue in-line with PC market growth; multi-year license revenue to grow mid to high-single digits
Online advertising revenue to outperform the online advertising market
Revenue growth mid-twenties
COGS Q2 will be impacted by expected significant increase in hardware sales following the Kinect launch. Xbox consoles & Kinect have a higher COGS profile relative to revenue
Other Items
Opex For FY11, expect operating expenses to be $26.9B to $27.3B
Windows & Windows Live
Tax Expect effective tax rate to be 23% to 24% for the second quarter and the remainder of the fiscal year
Capex For FY11, expect our capital expenditures to be about $2.5B
Agenda
Quarterly Overview & Quarter Result
Business Segment Financial Overview
Outlook
Appendix
Reconciliation of differences between GAAP and non-GAAP Financial Measures
Our presentation of first-quarter performance includes non-GAAP financial measures. The following slides provide a reconciliation between the GAAP and non-GAAP financial measures presented including:
Impact of Windows 7 deferral on Windows and Windows Live Division revenueImpact of Windows 7 deferral on Microsoft revenueImpact of Windows 7 deferral on OEM revenueImpact of segment reporting changes on FY10 revenue and operating income
Reconciliation of GAAP and Non-GAAP Financial Measures
9/30/2010
9/30/2009 Y/Y $ Y/Y %
GAAP WWLD revenue $4,785 $2,880 $1,905 66%
Add: Windows 7 deferral $1,466 ($1,466)
WWLD, adjusted for item above $4,785 $4,346 $439 10%
The non-GAAP measures provided above, which remove the revenue adjustment for Windows 7 Deferral from the most directly comparable GAAP measures, are included as an additional clarifying item to aid readers of the financial statements in further understanding the Company's first-quarter performance and the impact that certain items and events had on the financial results. The non-GAAP financial measures provided above should not be considered as a substitute for, or superior to, the measures of financial performance prepared in accordance with GAAP.
Three Months Ended
Windows & Windows Live Division: Windows 7 deferral impact
$ Millions
GAAP Microsoft operating income (D) $7,116 $4,482 59%
Add: Windows 7 deferral (E) $1,466
Microsoft operating income, adjusted for above items F = (D + E) $7,116 $5,948 20%
GAAP Microsoft revenue (A) $16,195 $12,920 25%
Add: Windows 7 deferral (B) $1,466
Microsoft revenue, adjusted for above items C = (A + B) $16,195 $14,386 13%
9/30/2010 9/30/2009 Y/Y
Reconciliation of GAAP and Non-GAAP Financial Measures
Three Months Ended
GAAP Microsoft operating margin (D/A) 44% 35% 9pts
Microsoft operating margin, adjusted for above items (F/C) 44% 41% 3pts
The non-GAAP measures provided above, which remove the revenue adjustment for Windows 7 deferral from the most directly comparable GAAP measures, are included as an additional clarifying item to aid readers of the financial statements in further understanding the Company's first-quarter performance and the impact that certain items and events had on the financial results. The non-GAAP financial measures provided above should not be considered as a substitute for, or superior to, the measures of financial performance prepared in accordance with GAAP.
Microsoft Revenue and OI: Windows 7 deferral impact $ Millions
GAAP Microsoft net income (A) $5,410 $3,574 51%
Add: Windows 7 deferral (B) $1,100
Microsoft net income, adjusted for above items C = (A + B) $5,410 $4,674 16%
9/30/2010 9/30/2009 Y/Y
Reconciliation of GAAP and Non-GAAP Financial Measures
Three Months Ended
GAAP EPS $0.62 $0.40 55%
EPS adjusted for above items $0.62 $0.52 19%
The non-GAAP measures provided above, which remove the revenue adjustment for Windows 7 deferral from the most directly comparable GAAP measures, are included as an additional clarifying item to aid readers of the financial statements in further understanding the Company's first-quarter performance and the impact that certain items and events had on the financial results. The non-GAAP financial measures provided above should not be considered as a substitute for, or superior to, the measures of financial performance prepared in accordance with GAAP.
Microsoft Net Income and EPS: Windows 7 deferral impact
$ Millions
GAAP OEM revenue (A) $3,694 $1,914 93%
Add: Windows 7 deferral (B) $1,416
OEM revenue, adjusted for above items C = (A + B) $3,694 $3,330 11%
9/30/2010 9/30/2009 Y/Y
Reconciliation of GAAP and Non-GAAP Financial Measures
Three Months Ended
The non-GAAP measures provided above, which remove the revenue adjustment for Windows 7 deferral from the most directly comparable GAAP measures, are included as an additional clarifying item to aid readers of the financial statements in further understanding the Company's first-quarter performance and the impact that certain items and events had on the financial results. The non-GAAP financial measures provided above should not be considered as a substitute for, or superior to, the measures of financial performance prepared in accordance with GAAP.
OEM Revenue: Windows 7 deferral impact
$ Millions
Revenue Q1 Q2 Q3 Q4 FY
Segments Reported Recast Reported Recast Reported Recast Reported Recast Reported Recast
WWLD $2,624 $ 2,880 $ 6,904 $ 7,189 $ 4,415 $ 4,661 $ 4,548 $4,775 $18,491 $19,505
S&T $3,434 $3,550 $ 3,845 $ 3,973 $ 3,575 $ 3,706 $ 4,012 $ 4,149 $14,866 $15,378
OSD $ 486 $ 487 $582 $580 $ 566 $ 566 $ 565 $ 568 $ 2,199 $2,201
MBD $ 4,404 $4,514 $ 4,745 $ 4,847 $ 4,243 $4,343 $ 5,250 $ 5,372 $18,642 $19,076
EDD $ 1,891 $1,412 $ 2,902 $ 2,396 $ 1,665 $1,197 $ 1,600 $1,153 $ 8,058 $ 6,158
Corporate $ 81 $77 $ 44 $37 $ 39 $30 $ 64 $ 22 $ 228 $ 166
MSFT $
12,920 $
12,920 $
19,022 $
19,022 $
14,503 $
14,503 $
16,039 $
16,039 $
62,484 $
62,484
Impact of Segment Reporting Changes on FY10 Revenue & OI
Operating Income (Loss) Q1 Q2 Q3 Q4 FY
Segments Reported Recast Reported Recast Reported Recast Reported Recast Reported Recast
WWLD $1,458 $1,483 $ 5,395 $ 5,420 $3,061 $3,076 $ 3,063 $ 3,066 $
12,977 $
13,045
S&T $ 1,235 $1,237 $ 1,455 $ 1,447 $ 1,255 $ 1,254 $1,546 $1,548 $ 5,491 $ 5,486
OSD $ (481) $ (477) $ (465) $ (463) $ (713) $ (710) $ (696) $ (690) $
(2,355) $
(2,340)
MBD $2,859 $ 2,827 $ 3,011 $ 2,943 $ 2,622 $ 2,563 $ 3,284 $ 3,229 $
11,776 $
11,562
EDD $ 310 $ 260 $ 376 $370 $ 165 $ 143 $ (172) $ (168) $ 679 $ 605
Corporate $ (899) $ (848) $
(1,259) $
(1,204) $
(1,217) $
(1,153) $
(1,095) $
(1,055) $
(4,470) $
(4,260)
MSFT $ 4,482 $ 4,482 $ 8,513 $ 8,513 $ 5,173 $5,173 $ 5,930 $ 5,930 $
24,098 $
24,098
We have recast certain prior period amounts within this presentation to conform to the way we internally managed and monitored segment performance during the current fiscal year.
$ Millions
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