Brian's Waste of Time

Sun, 11 Sep 2005

I Want a Monopoly Too!

Tim Bray pointed out Microsoft's June 2005 financial statement. I am grateful to the president of a startup I worked at previously who taught me how to read these. This one is fascinating =)

The most interesting part, however, is just looking at the money around Microsoft's two (self reinforcing) monopolies. The first is Windows, of course. On the financial statement Windows translates to client (emphasis mine):

Client includes revenue from Windows XP Professional and Home, Media Center Edition, Tablet PC Edition, and other standard Windows operating systems. Client revenue growth is correlated with the growth of purchases of PCs from OEMs that preinstall versions of Windows operating systems because the OEM channel accounts for over 80% of total Client revenue.

That is nice, so what is interesting about the numbers? Well, we see a pretty nice top line revenue of $12.2 billion. The fun part of that is that the operating income (profit before taxes and interest) is a tidy $9.4 billion. It is awfully nice to pull a 77% operating margin (profit before taxes, hereafter referred to as "profit").

The other interesting part is what Tim was focusing on, the information worker lines (emphasis mine):

Information Worker consists of the Microsoft Office System of programs, servers, services and solutions designed to increase personal, team and organization productivity. Information Worker includes Microsoft Office, Microsoft Project, Microsoft Visio®, SharePoint® Portal Server CALs, and other information worker products including Microsoft LiveMeeting and OneNote®. Most revenue from this segment comes from licensing our Office System products.

This one has slightly slimmer profit margins, only 71.8% profit on $11 billion revenue.

Damn, it'd be nice to have my own monopoly.

Aside from the monopoly stuff, there are some plain interesting bits. Cash and short term investments are down $10 billion each from the same time last year. This presumably comes out of the one-time dividend payout they did in... June. Love seeing the $36 billion cash dividend payout. Yowzers!

Speaking of stock, they bought a healthy chunk back, about 8 billion shares, while issueing 3 billion. That means net loss of 5 billion MS shares floating around, leaving (I believe) 24 billion outstanding shares. That is a lot of buyback.

Their R&D spending is down about $1.6 billion, from $7.8 billion to $6.2 billion. Sales and marketing is up a bit (I love calling $270 million "a bit" =) to about $8.7 billion. So yeah, they do spend more on marketing than R&D, but they are a business and marketing is important. It is impressive how little of their topline revenue goes into marketing and sales, actually, at only about 22%.

It is of course nice to look at the non-monopoly business divisions as well. MSN is squeaking out a pretty respectable (20%) profit, with $2.2 billion in revenue and $405 million in profit. Servers have a very respectable margin as well, about 33% on $9.9 billion revenue. Both are very nice from a profit perspective, I'm too lazy to dig into more detail =) Business solutions, mobile, and entertainment all lost lots of money by normal standards, or small change compared to the Windows and Office profits, though the mysterious "other" lost the most, at almost $6 billion.

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