this presentation contains statements that are forward-looking. these statements are based on...

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


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


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


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


$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*


*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


$1

$2

$3

$1.41

$2.40

$1.20 $1.15

$1.80

GAAP revenue $B

27% Y/Y Increase

Strong quarter & exciting outlook


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



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



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


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%


Microsoft net income, adjusted for above items C = (A + B) $5,410 $4,674 16%

9/30/2010 9/30/2009 Y/Y


Three Months Ended

GAAP EPS $0.62 $0.40 55%

EPS adjusted for above items $0.62 $0.52 19%


Microsoft Net Income and EPS: Windows 7 deferral impact

$ Millions

GAAP OEM revenue (A) $3,694 $1,914 93%


OEM revenue, adjusted for above items C = (A + B) $3,694 $3,330 11%

9/30/2010 9/30/2009 Y/Y


Three Months Ended


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

© 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.

this presentation contains statements that are forward-looking. these statements are based on...

Documents

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deferral impact slide

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