Microsoft 2010 Annual Report Download - page 12

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11
software published for non-Xbox platforms, our games business also competes with numerous companies that we
have licensed to develop and publish software for the Xbox consoles.
Windows Phone faces competition from Apple, Google, Nokia, Openwave Systems, Palm, QUALCOMM, Research
In Motion, and Symbian. The embedded operating system business is highly fragmented with many competitive
offerings. Key competitors include IBM, Intel, and versions of embeddable Linux from commercial Linux vendors
such as Metrowerks and MontaVista Software.
Zune competes with Apple and other manufacturers of digital music and entertainment devices. Our PC hardware
products face aggressive competition from computer and other hardware manufacturers, many of which are also
current or potential partners. Mediaroom faces competition primarily from a variety of competitors that provide
elements of an Internet protocol television delivery platform, but that do not provide end-to-end solutions for the
network operator.
Additional information on our operating segments and geographic and product information is contained in Note 22 –
Segment Information and Geographic Data of the Notes to Financial Statements.
OPERATIONS
To serve the needs of customers around the world and to improve the quality and usability of products in
international markets, we localize many of our products to reflect local languages and conventions. Localizing a
product may require modifying the user interface, altering dialog boxes, and translating text.
Our operational centers support all operations in their regions, including customer contract and order processing,
credit and collections, information processing, and vendor management and logistics. The regional center in Ireland
supports the European, Middle Eastern, and African region; the center in Singapore supports the Japan, Greater
China and Asia-Pacific region; and the centers in Fargo, North Dakota, Fort Lauderdale, Florida, Puerto Rico,
Redmond, Washington, and Reno, Nevada support Latin America and North America. In addition to the operational
centers, we also operate data centers throughout the United States and in Europe.
We contract most of our manufacturing activities for Xbox 360 and related games, Zune, various retail software
packaged products, and Microsoft hardware to third parties. Our products may include some components that are
available from only one or limited sources. Our Xbox 360 console includes certain key components that are supplied
by a single source. The integrated central processing unit/graphics processing unit is purchased from IBM and the
supporting embedded dynamic random access memory chips are purchased from Taiwan Semiconductor
Manufacturing Company. Although we have chosen to initially source these key Xbox 360 components from a single
supplier, we are under no obligation to exclusively source components from these vendors in the future. Beyond the
exceptions noted, we generally have the ability to use other custom manufacturers if the current vendor becomes
unavailable. We generally have multiple sources for raw materials, supplies, and components, and are often able to
acquire component parts and materials on a volume discount basis.
RESEARCH AND DEVELOPMENT
During fiscal years 2010, 2009, and 2008, research and development expense was $8.7 billion, $9.0 billion, and
$8.2 billion, respectively. These amounts represented 14%, 15%, and 14%, respectively, of revenue in each of those
years. We plan to continue to make significant investments in a broad range of research and product development
efforts.
While most of our software products are developed internally, we also purchase technology, license intellectual
property rights, and oversee third-party development and localization of certain products. We believe we are not
materially dependent upon licenses and other agreements with third parties relating to the development of our
products. Internal development allows us to maintain closer technical control over our products. It also gives us the
freedom to decide which modifications and enhancements are most important and when they should be
implemented. Generally, we also create product documentation internally. We strive to obtain information as early as
possible about changing usage patterns and hardware advances that may affect software design. Before releasing
new software platforms, we provide application vendors with a range of resources and guidelines for development,
training, and testing.