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First Quarter Fiscal Year 2011 Results October 28, 2010 PowerPoint Presentation
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First Quarter Fiscal Year 2011 Results October 28, 2010
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  1. First Quarter Fiscal Year 2011 Results October 28, 2010

  2. 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.

  3. Agenda • Quarterly Overview & Quarter Results • Business Segment Financial Overview Outlook Appendix

  4. Quarterly Overview Product momentum with solid execution led to record results • Record first-quarter revenue, OI and EPS • Double-digit revenue and EPS growth • Bookings growth of 24% • Operating margin expansion due to continued cost management • Healthy demand from both businesses and consumers

  5. Financial Summary – FY11 Q1 • GAAP revenue: $16.2 billion • 13% growth over the comparable period last year* • Record GAAP operating income: $7.1 billion • 20% growth over the comparable period last year* • GAAP diluted earnings per share: $0.62 • 19% growth over the comparable period last year* • Record operating cash flow of $8.2 billion • 34% 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”)

  6. FY11 Q1 Metrics $13.9B Unearned Revenue Contracted Not Billed >$16B PC Unit Growth 9% - 11% OEM Premium Mix 71% Business Premium Mix Consumer Premium Mix 40% 31%

  7. Agenda • Quarterly Overview & Quarter Result • Business Segment Financial Overview Outlook Appendix

  8. Windows & Windows Live Division Continued Windows 7 demand drives strong growth • Another quarter of double-digit revenue growth • PC market grew 9%-11% • OEM revenue grew 11%* • Business PC refresh continues • Enterprise adoption of Windows 7 accelerating • 240M+ Windows 7 licenses sold to date GAAP revenue portion related to Windows 7 deferred revenue recognition $7.19 10% Y/Y Increase* 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

  9. Windows OEM Revenue Bridge • FY11 Q1 Growth • OEM Revenue Growth Drivers (%) PC Market 10% 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

  10. Server & Tools Datacenter, developer & cloud drive double-digit growth • 12% revenue growth • Multi-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 12% Y/Y Increase 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.

  11. Online Services Division Bing revenue growth continues to outperform the market • Revenue growth 8% • Online advertising revenue grew 13%, primarily driven by growth in search • Bing continues to gain market share in the US • Yahoo! search integration milestones achieved 8% Y/Y Increase 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.

  12. Revenue growth 14% Consumer growth 26% Business growth 11% Double-digit growth for SharePoint, Lync, Dynamics CRM, and Exchange Tripled number of business customers using cloud services Office 365 announced Microsoft Business Division Office 2010 momentum drives MBD growth 14% Y/Y Increase $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

  13. Entertainment & Devices Division Strong quarter & exciting outlook • Xbox 360 console units up 38% • Continued strong Xbox Live membership growth • Windows Phone 7 launched in Europe and Asia on Oct 21st • Windows Phone 7 US and Canada launch Nov 8th • Kinect launch Nov 4th 27% Y/Y Increase 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.

  14. Microsoft Cloud Momentum Office 365 Announced • Next generation cloud productivity service • Office Professional, Exchange, SharePoint, and Lync • Office 365 for small business priced at $6; full offering $24 • Available worldwide next year Business Productivity Online Services • 3X number of customers Y/Y • Available in 40 countries • 70% of seats new customers to Microsoft • State of California, State of Minnesota, New York City, DuPont, and Godiva customer wins Windows Azure • 40% sequential subscriber growth • Platform enhancements announced at October PDC that help customers build new applications and migrate existing applications to Azure Consumer Offerings • Bing powering Yahoo! search in US & Canada • Bing search queries almost doubled since launch • >20M Office Web App users • Xbox Live fall update coming in Q2 • Windows Live Essentials 2011 launched

  15. Agenda • Quarterly Overview & Quarter Result • Business Segment Financial Overview Outlook Appendix

  16. Outlook Segment Revenue FY11 Q2 FY11 In-line with PC market growth after normalizing for the FY10 Windows 7 launch spike [$600M] and the deferral impact [$1.7B] In-line with PC market growth after normalizing for the FY10 Windows 7 launch spike [$700M] and the deferral from FY09 [$300M] Windows & Windows Live Non-annuity to track with hardware shipments; multi-year licensing revenue should grow high-single digits; Services should grow mid-single digits Non-annuity to track with hardware shipments; multi-year licensing revenue should grow low-double digits; Services should grow mid-single digits Server & Tools Consumer & Business non-annuity revenue in-line with PC market growth; multi-year license revenue to grow mid to high-single digits Consumer & Business non-annuity revenue in-line with PC market growth; multi-year license revenue to grow mid to high-single digits Microsoft Business Division Online advertising revenue to outperform the online advertising market Online advertising revenue to outperform the online advertising market Online Services Division Revenue growth roughly 30% Revenue growth mid-twenties Entertainment & Devices Other Items 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 For FY11, expect operating expenses to be $26.9B to $27.3B Opex Tax Expect effective tax rate to be 23% to 24% for the second quarter and the remainder of the fiscal year For FY11, expect our capital expenditures to be about $2.5B Capex

  17. Agenda • Quarterly Overview & Quarter Result • Business Segment Financial Overview Outlook Appendix

  18. 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 revenue • Impact of Windows 7 deferral on Microsoft revenue • Impact of Windows 7 deferral on OEM revenue • Impact of segment reporting changes on FY10 revenue and operating income

  19. Reconciliation of GAAP and Non-GAAP Financial Measures Windows & Windows Live Division: Windows 7 deferral impact • Three Months Ended $ Millions 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.

  20. Reconciliation of GAAP and Non-GAAP Financial Measures Microsoft Revenue and OI: Windows 7 deferral impact Three Months Ended $ Millions 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.

  21. Reconciliation of GAAP and Non-GAAP Financial Measures Microsoft Net Income and EPS: Windows 7 deferral impact Three Months Ended $ Millions 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.

  22. Reconciliation of GAAP and Non-GAAP Financial Measures OEM Revenue: Windows 7 deferral impact Three Months Ended $ Millions 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.

  23. Impact of Segment Reporting Changes on FY10 Revenue & OI $ Millions 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.

  24. © 2010 Microsoft Corporation. All rights reserved. Microsoft, Windows, Windows Vista and other product names are or may be registered trademarks and/or trademarks in the U.S. and/or other countries. The information herein is for informational purposes only and represents the current view of Microsoft Corporation as of the date of this presentation. Because Microsoft must respond to changing market conditions, it should not be interpreted to be a commitment on the part of Microsoft, and Microsoft cannot guarantee the accuracy of any information provided after the date of this presentation. MICROSOFT MAKES NO WARRANTIES, EXPRESS, IMPLIED OR STATUTORY, AS TO THE INFORMATION IN THIS PRESENTATION.