Microsoft 2006 Annual Report Download - page 30

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PAGE 29
Operating Income / (Loss)
For the quarter ended
For the quarter ended
(In millions)
Fiscal
Y
ear
2006
June 30,
2006
March 31,
2006
December
31,
2005
S
eptember
30,
2005
Fiscal
Y
ear
2005
June
30,
2005
March 31,
2005
December
31,
2004
S
eptember
30,
2004
S
egments
Client
$10,182
$2,504
$2,471
$2,638
$2,569
$9,403
$2,172
$2,331
$2,513
$2,387
Server and Tools
3,017
903
746
762
606
2,109
479
515
660
455
Online Services
Business (77)
(190)
(26) 58
81
411
101
101
130
79
Microsoft Business
Division 9,675
2,544
2,414
2,466
2,251
9,116
2,285
2,316
2,355
2,160
Entertainment and
Devices (1,337)
(437)
(422) (296)
(182)
(607)
(235)
(198) 28
(202
)
Corporate-Level Activity
(4,988)
(1,443)
(1,295)
(971)
(1,279)
(5,871)
(1,813)
(1,736)
(937)
(1,385
)
Total operating
income $16,472
$3,881
$3,888
$4,657
$4,046
$14,561
$2,989
$3,329
$4,749
$3,494
Our outlook for fiscal year 2007 based on the five operating segments is as follows:
Client We expect revenue to grow reflecting improvement in the commercial and retail portion of the business due to our
upcoming launch of Windows Vista. We expect revenue generated from OEMs to grow slower than the PC hardware market due
to increased concentration among larger OEMs, consumer hardware shipments growing faster than business shipments, and
relatively faster growth in emerging markets. We expect PC shipments to grow 8% to 10% for fiscal year 2007. We believe that
PC unit growth rates will be higher in the consumer segment than in the business segment and higher in emerging markets than
in mature markets.
Server and Tools We expect continued momentum from recent product launches and the expansion of our products in
security, management and designer tools will help drive our overall revenue growth in fiscal year 2007. We estimate overall
server hardware unit shipments will grow 10% to 12% in fiscal year 2007. However, we face competition from Linux-based, Unix,
and other server operating systems as well as competition in server applications.
Online Services Business We expect increased growth in display advertising revenue as the portals, channels, and
communications services continue to expand globally and the overall Internet advertising industry continues to expand. Our
search revenue is expected to grow in fiscal year 2007 as a result of continued ramp up of adCenter. We expect revenue from
narrowband Internet Access to continue to decline in fiscal year 2007.
Microsoft Business Division We expect Microsoft Business Division revenue to grow in fiscal year 2007. We feel that our
customers’ continued preference to purchase annuity contracts indicates enthusiasm for the 2007 Microsoft Office system. We
also expect continued demand for our Dynamics products, building on the fiscal 2006 momentum.
Entertainment and Devices Division We expect revenue to increase from fiscal year 2006 due to the increased availability of
the Xbox 360 console unit during the entire fiscal year, including the second holiday season after the launch in fiscal year 2006.
In fiscal year 2007, we expect to introduce a music and entertainment device, the first in a new family of hardware and software
products for the consumer market. The availability of a commercial IPTV product is expected to drive significant growth in MSTV
revenue across several geographies. Revenue from existing mobility and embedded devices is expected to increase due to unit
volume increases of Windows Mobile software driven by increased market demand for phone-enabled devices and Windows
Embedded operating systems. Short product life cycles in product lines such as Windows Mobile software may impact our
continuing revenue streams. Xbox 360 console unit costs are expected to decline.
As we implement our long-term growth strategy, we expect to increase our level of spending in four key areas in fiscal year
2007: increased product costs associated with Xbox consoles; marketing and field sales spending including launch costs;
quickening the pace of development in growth areas such as business intelligence, security, management and unified
communications (including acquisitions); and increased costs to execute on our online services strategy. While these
investments will translate into increased operating expenses in fiscal year 2007, we believe they will help lay the groundwork for
future growth and profitability.