COMPANY OVERVIEW
Performance
Strong Windows & Xbox demand and execution led to strong Q1 performance
- Revenue driven by Windows and Xbox demand
- Business segments stabilizing
- Continued cost discipline
- Adjusted EPS growth of 8% over the comparable period last year
- Operating cash flow of $6.1 billion; resumed share repurchases
- Strong product pipeline
Revenue declined across most segments, with the following primary contributing factors:
• The Windows & Windows Live Division deferred approximately $1.5 billion of 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 (the "Windows 7 Upgrade Option") and with sales of Windows 7 to original equipment manufacturers ("OEMs") and retailers before general availability in the second quarter of fiscal year 2010.
• Revenue from the Microsoft Business Division declined primarily as a result of 2007 Microsoft Office system licensing activity.
• Changes in foreign currency exchange rates accounted for a $233 million or 2 percentage point decrease in revenue.
Operating income decreased primarily reflecting decreased revenue, offset in part by decreased operating expenses in all categories.
• Sales and marketing expenses decreased $254 million or 8%, due mainly to an 8% decrease in headcount-related expenses and decreased corporate marketing and advertising campaigns. The decrease in headcount-related expenses was driven by reductions in employee headcount as a result of the resource management program implemented in early calendar year 2009.
• Research and development decreased $218 million or 10%, primarily reflecting a 6% decrease in headcount-related expenses and capitalization of certain costs relating to development of Windows 7.
• General and administrative expenses decreased $146 million or 16%, primarily due to a 16% decrease in headcount-related expenses and decreased legal expenses.
Diluted earnings per share declined primarily reflecting decreased net income, offset in part by share repurchases during the past 12 months. We repurchased 152 million shares during the 12 months ended September 30, 2009.
IMPORTANT NOTICE TO USERS (summary only, click here for full text of notice): All information 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 the date 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.
