FY10 Q2 - Windows and Windows Live Division Performance - Investor Relations - Microsoft

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Earnings Release FY10 Q2

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Windows Division Performance

Consumer Windows 7 sales drive record results

  • Record Windows licenses sold; Windows 7 licenses > 60 million through Q2
  • PC market grew 15 to 17% y/y; Consumers PC > 20% y/y; Business PC flat y/y
  • OEM revenue* grew 21%, several points over the PC market
  • Attach rate improved y/y
  • OEM inventory back to normal levels

* Adjusted EPS and OEM revenue growth have been restated to remove impact of Windows 7 deferred revenue recognition. Click here for reconciliation to GAAP numbers (slide 28).

Windows Division revenue growth is directly impacted by growth of PC purchases from original equipment manufacturers ("OEMs") that pre-install versions of Windows operating systems because the OEM channel accounts for approximately 80% of total Windows Division revenue. The remaining approximately 20% of Windows Division revenue ("other revenue") is generated by commercial and retail sales of Windows and online advertising from Windows Live. In the first quarter of fiscal year 2010, we deferred revenue (the "Windows 7 Deferral") associated with sales of Windows Vista with a guarantee to be upgraded to Windows 7 at minimal or no cost and with sales of Windows 7 to retailers before general availability. We recognized the majority of this deferred revenue in the second quarter after launching Windows 7 on October 22, 2009.

Windows Division revenue increased due to strong sales of Windows 7 and PC market improvement. Based on our estimates, total worldwide PC shipments from all sources grew approximately 15% to 17%. Excluding $1.7 billion of revenue recognized related to the Windows 7 Deferral, OEM revenue increased $664 million or 21%, while OEM license units increased 22%. The OEM revenue increase was primarily driven by PC market growth, higher Windows attach rates across all regions, channels, and types of PCs and the restoration of normal OEM inventory levels, offset in part by PC market changes, including stronger growth of consumer PCs versus business PCs and emerging markets versus developed markets. Other revenue increased $511 million or 60% driven primarily by strong Windows 7 retail sales.

Windows Division operating income increased as a result of increased revenue, offset in part by increased operating expenses. Cost of revenue increased $81 million or 25%, primarily driven by increased retail product costs, traffic acquisition costs, and royalties. Sales and marketing expenses increased $113 million or 18% reflecting increased advertising and marketing campaigns for the launch of Windows 7.

IMPORTANT NOTICE TO USERS (summary only, click here  for full text of notice); All information is unaudited unless otherwise noted or accompanied by an audit opinion and is subject to the more comprehensive information contained in our SEC reports and filings. We do not endorse third-party information. All information speaks as of the last fiscal quarter or year for which we have filed a Form 10-K or 10-Q, or for historical information the date or period expressly indicated in or with such information. We undertake no duty to update the information. Forward-looking statements are subject to risks and uncertainties described in our  Forms 10-Q and 10-K.

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FY10 Earnings Release Schedule

  • Q3-Thursday, April 22
  • Q4-Thursday, July 22

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