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Microsoft Reports Record Q4 Revenue, Up 8%

REDMOND, Wash. — Jul. 21, 2011 — Microsoft Corp. today announced record fourth-quarter revenue of $17.37 billion for the quarter ended June 30, 2011, an 8% increase from the same period of the prior year. Operating income, net income, and diluted earnings per share for the quarter were $6.17 billion, $5.87 billion, and $0.69 per share, which represented increases of 4%, 30%, and 35%, respectively, when compared with the prior year period.

For the fiscal year ended June 30, 2011, Microsoft reported record revenue of $69.94 billion, a 12% increase from the prior year. Operating income, net income, and diluted earnings per share for the year were $27.16 billion, $23.15 billion, and $2.69, which represented increases of 13%, 23%, and 28%, respectively, when compared with the prior year.

“Throughout fiscal 2011, we delivered to market a strong lineup of products and services which translated into double-digit revenue growth, and operating margin expansion,” said Peter Klein, chief financial officer at Microsoft. “Our platform and cloud investments position us for long-term growth.”

Microsoft Business Division revenue for the fourth quarter grew 7% and 16% for the full year. Office 2010 continues to be the fastest-selling version of Microsoft Office in history with over 100 million licenses sold. In June, Microsoft released Office 365 with familiar Microsoft Office collaboration and productivity tools delivered through the cloud.

Server & Tools revenue grew 12% for the fourth quarter, the fifth consecutive quarter of double-digit growth, and grew 11% for the full year. Windows Server, System Center, and SQL Server continued to drive revenue growth in the segment.

Windows and Windows Live Division revenue declined 1% for the fourth quarter and revenue for the full year decreased 2%. Excluding the impact of the prior year Windows 7 launch and revenue deferral, we estimate full-year revenue growth was in line with PC market growth of 2% to 4%. Windows 7 has sold over 400 million licenses and business deployments continue to accelerate. During the quarter, Microsoft unveiled a preview of the next version of Windows, codenamed Windows 8, featuring a new user interface and application experience.

Online Services Division revenue grew 17% for the fourth quarter and 15% for the full year, primarily driven by increases in search revenue. Bing’s U.S. search share increased 340 basis points year-over-year to 14.4% this quarter. Microsoft also released new features that incorporate the Facebook social graph to help users make better decisions based on their social connections.

Entertainment & Devices Division revenue grew 30% for the fourth quarter and 45% for the full year, due to the ongoing momentum of the console, Kinect, and Xbox Live. Xbox 360 has been the top-selling game console in the U.S. over the past twelve months. At E3 in June, Microsoft highlighted its upcoming game lineup, Xbox Live content partnerships, and enhanced content discovery using Bing and Kinect.

“A strong year of double-digit increases in revenue and earnings is a real credit to all of our Microsoft employees and partners around the world. We continue to see strong business demand across all of our products, from small businesses all the way up to the largest global enterprises,” said Kevin Turner, chief operating officer at Microsoft. “Our move to cloud services continues with the release and momentum of Office 365 and growth in Windows Azure. We’re providing our customers seamless and powerful ways to move to the cloud, and we are well positioned for the coming year.”

Business Outlook

Microsoft reaffirms fiscal 2012 operating expense guidance of 3% to 5% growth from 2011, or $28.0 billion to $28.6 billion.

Webcast Details

Peter Klein, chief financial officer, Frank Brod, chief accounting officer, and Bill Koefoed, general manager of Investor Relations, will host a conference call and webcast at 2:30 p.m. PDT (5:30 p.m. EDT) today to discuss details of the company’s performance for the quarter and certain forward-looking information. The session may be accessed athttp://www.microsoft.com/investor. The webcast will be available for replay through the close of business on Jul. 21, 2012.

About Microsoft

Founded in 1975, Microsoft (Nasdaq “MSFT”) is the worldwide leader in software, services and solutions that help people and businesses realize their full potential.

Forward-Looking Statements

Statements in this release that are “forward-looking statements” are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could differ materially because of factors such as:

  • execution and competitive risks in transitioning to cloud-based computing;
  • challenges to Microsoft’s business model;
  • intense competition in all of Microsoft’s markets;
  • Microsoft’s continued ability to protect its intellectual property rights;
  • claims that Microsoft has infringed the intellectual property rights of others;
  • the possibility of unauthorized disclosure of significant portions of Microsoft’s source code;
  • actual or perceived security vulnerabilities in Microsoft products that could reduce revenue or lead to liability;
  • improper disclosure of personal data that could result in liability and harm to Microsoft’s reputation;
  • outages and disruptions of services provided to customers directly or through third parties if Microsoft fails to maintain an adequate operations infrastructure;
  • government litigation and regulation affecting how Microsoft designs and markets its products;
  • Microsoft’s ability to attract and retain talented employees;
  • delays in product development and related product release schedules;
  • significant business investments that may not gain customer acceptance and produce offsetting increases in revenue;
  • unfavorable changes in general economic conditions, disruption of our partner networks or sales channels, or the availability of credit that affect demand for Microsoft’s products and services or the value of our investment portfolio;
  • adverse results in legal disputes;
  • unanticipated tax liabilities;
  • quality or supply problems in Microsoft’s consumer hardware or other vertically integrated hardware and software products;
  • impairment of goodwill or amortizable intangible assets causing a charge to earnings;
  • exposure to increased economic and regulatory uncertainties from operating a global business;
  • geopolitical conditions, natural disaster, cyberattack or other catastrophic events disrupting Microsoft’s business; and
  • acquisitions, joint ventures and strategic alliances that adversely affect the business.

For further information regarding risks and uncertainties associated with Microsoft’s business, please refer to the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” sections of Microsoft’s SEC filings, including, but not limited to, its annual report on Form 10-K and quarterly reports on Form 10-Q, copies of which may be obtained by contacting Microsoft’s Investor Relations department at (800) 285-7772 or at Microsoft’s Investor Relations website at http://www.microsoft.com/investor.

All information in this release is as of July 21, 2011. The company undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in the company’s expectations.

Entertainment and Devices Division

(In millions, except percentages) Three Months Ended
June 30,
Percentage
Change
Twelve Months Ended
June 30,
Percentage
Change
2011 2010 2011 2010
Revenue $ 1,485 $ 1,144 30% $ 8,913 $ 6,168 45%
Operating income (loss) $ 32 $ (172 ) * $ 1,324 $ 618 114%

*       Not meaningful

Entertainment and Devices Division (“EDD”) develops and markets products and services designed to entertain and connect people. EDD offerings include the Xbox 360 entertainment platform (which includes the Xbox 360 gaming and entertainment console, Kinect for Xbox 360, Xbox 360 video games, Xbox LIVE, and Xbox 360 accessories), Mediaroom (our Internet protocol television software), and Windows Phone. In November 2010, we released Kinect for Xbox 360 and the latest version of Windows Phone.

Three months ended June 30, 2011 compared with three months ended June 30, 2010

EDD revenue increased primarily reflecting higher Xbox 360 platform revenue. Xbox 360 platform revenue grew $293 million or 29%, led by higher Xbox LIVE revenue and increased volumes of Xbox 360 consoles sold. We shipped 1.7 million Xbox 360 consoles during the fourth quarter of fiscal year 2011, compared with 1.5 million Xbox 360 consoles during the fourth quarter of fiscal year 2010.

EDD operating income increased primarily reflecting revenue growth, offset in part by higher cost of revenue. Cost of revenue increased $118 million or 15% primarily reflecting higher volumes of Xbox 360 consoles, and increased royalty costs resulting from increased sales of Xbox LIVE digital content.

Twelve months ended June 30, 2011 compared with twelve months ended June 30, 2010

EDD revenue increased primarily reflecting higher Xbox 360 platform revenue. Xbox 360 platform revenue grew $2.7 billion or 48%, led by increased volumes of Xbox 360 consoles, sales of Kinect sensors, and higher Xbox LIVE revenue. We shipped 13.7 million Xbox 360 consoles during fiscal year 2011, compared with 10.3 million Xbox 360 consoles during fiscal year 2010.

EDD operating income increased primarily reflecting revenue growth, offset in part by higher cost of revenue. Cost of revenue increased $1.8 billion or 49% primarily reflecting higher volumes of Xbox 360 consoles and Kinect sensors sold, and increased royalty costs resulting from increased sales of Xbox LIVE digital content. Research and development expenses increased $119 million or 12%, primarily reflecting higher headcount-related costs. Sales and marketing expenses grew $90 million or 12% primarily reflecting increased Xbox 360 platform marketing activities.

Link to full press release and financial statements

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