Windows OEM Pro revenue decreased 9% and Windows OEM non-Pro revenue grew 21%. Certain volume licensing programs, including Enterprise Agreements, include on-premises licenses combined with Software Assurance (SA). PSUs generally vest over a performance period of three years. We also compete with other providers of entertainment services such as video streaming platforms. Microsoft generated $51.728 billion in revenue during Q2 2022, across the following three segments. 88% of employees globally participated in our fiscal year 2021 MS Poll engagement survey, which covers a variety of topics such as inclusion, pay and benefits, and learning and development. We are exposed to economic risk from foreign exchange rates, interest rates, credit risk, and equity prices. For more about Microsofts CSR commitments and performance, please visit: www.microsoft.com/transparency. Advertising expense was $1.5 billion, $1.6 billion, and $1.6 billion in fiscal years 2021, 2020, and 2019, respectively. Apple and Microsoft are both great companies to own. Although we were not a party to the appeals, our software sales in India were determined to be not subject to withholding taxes. We also know that solving the carbon problem will require new technology and partnerships. Inventories are stated at average cost, subject to the lower of cost or net realizable value. We have distribution agreements covering one or more of our products with virtually all the multinational OEMs, including Dell, Hewlett-Packard, Lenovo, and with many regional and local OEMs. The goodwill was primarily attributed to increased synergies that are expected to be achieved from the integration of ZeniMax. Server software is integrated server infrastructure and middleware designed to support software applications built on the Windows Server operating system. The company brought in $51.9 billion in revenue, which is an increase of 12%. For these components, we have limited near-term flexibility to use other manufacturers if a current vendor becomes unavailable or is unable to meet our requirements. Microsoft just announced its results for FY22 Q4, which ended on June 30, 2022. Enterprise Services revenue increased $534 million or 8% driven by growth in Premier Support Services. While our main product research and development facilities are located in Redmond, Washington, we also operate research and development facilities in other parts of the U.S. and around the world. It also provides support, tools, training, and other licensing benefits to help customers deploy and use software efficiently. Windows Commercial revenue often reflects the number of information workers in a licensed enterprise and is relatively independent of the number of PCs sold in a given year. This section generally discusses the results of our operations for the year ended June 30, 2021 compared to the year ended June 30, 2020. Corporate governance information including our articles of incorporation, bylaws, governance guidelines, committee charters, codes of conduct and ethics, global corporate social responsibility initiatives, and other governance-related policies. Beyond our products, our operational security posture and threat intelligence help customers defend themselves. Securities held in our equity investments portfolio are subject to market price risk. The lawsuits also allege an industry-wide conspiracy to manipulate the science and testing around emission guidelines. Microsoft annual revenue for 2021 was $168.088B, a 17.53% increase from 2020. A year later, 2022 Q4 concluded with a gross profit margin of 24%, an improvement of over 800 basis points. We apply a practical expedient to expense costs as incurred for costs to obtain a contract with a customer when the amortization period would have been one year or less. Microsoft Mobile Oy, a subsidiary of Microsoft, along with other handset manufacturers and network operators, is a defendant in 46 lawsuits, including 45 lawsuits filed in the Superior Court for the District of Columbia by individual plaintiffs who allege that radio emissions from cellular handsets caused their brain tumors and other adverse health effects. If market, industry, and/or investee conditions deteriorate, we may incur future impairments. First of all, users - from 433 million users back in 2016 when it was acquired, up to 740 million users in 2021. This determination requires significant judgment. But the most notable thing is what will happen to the other 90 percent. And if we continue to pursue our mission, I am certain that we will collectively achieve so much more together. Former Executive Vice President and The purchase price included $768 million of cash and cash equivalents acquired. We perform a qualitative assessment on a periodic basis. Under the TCJA, the transition tax is payable in interest-free installments over eight years, with 8% due in each of the first five years, 15% in year six, 20% in year seven, and 25% in year eight. We have a strong position with our large and growing highly engaged community of gamers, including the March 2021 acquisition of ZeniMax Media Inc., the parent company of Bethesda Softworks LLC, one of the largest, privately held game developers and publishers in the world. 6 . Windows OEM and devices revenue was particularly . Highlights from fiscal year 2021 compared with fiscal year 2020 included: On March 9, 2021, we completed our acquisition of ZeniMax Media Inc. (ZeniMax), the parent company of Bethesda Softworks LLC, for a total purchase price of $8.1 billion, consisting primarily of cash. We also settled a portion of the IRS audit for tax years 2007 to 2009 in fiscal year 2016, and a portion of the IRS audit for tax years 2010 to 2013 in fiscal year 2018. We also invested $20 million in key non-profit partnerships through Microsoft Philanthropies to help people from underserved communities that are often excluded by the digital economy. Windows Commercial products and cloud services revenue increased 14% driven by demand for Microsoft 365. Economic Conditions, Challenges, and Risks. General Partner, Greylock Partners, Penny S. Pritzker 4 Reality Labs' total loss for 2022 came in . The segment was supported by increased drilling activity by customers. For comparability of reporting, management considers non-GAAP measures in conjunction with GAAP financial results in evaluating business performance. Antitrust, Unfair Competition, and Overcharge Class Actions. Chief Executive Officer and Our devices are designed to enable people and organizations to connect to the people and content that matter most using Windows and integrated Microsoft products and services. In these instances, we may use information such as the size of the customer and geographic region in determining the SSP. Our devices are primarily manufactured by third-party contract manufacturers, some of which contain certain components for which there are very few qualified suppliers. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date they are made. The decrease in our effective tax rate was primarily due to tax benefits from a decision by the India Supreme Court on withholding taxes in the case of Engineering Analysis Centre of Excellence Private Limited vs The Commissioner of Income Tax, an agreement between the U.S. and India tax authorities related to transfer pricing, final Tax Cuts and Jobs Act (TCJA) regulations, and an increase in tax benefits relating to stock-based compensation. This global approach helps us remain competitive in local markets and enables us to continue to attract top talent from across the world. This segment primarily comprises: Azure is a comprehensive set of cloud services that offer developers, IT professionals, and enterprises freedom to build, deploy, and manage applications on any platform or device. During fiscal year 2020, we recorded an impairment charge of $161 million to operating lease right-of-use assets due to the closing of our Microsoft Store physical locations. And every day this past year, I have had the privilege to see it in action, as customers of every size, in every industry, in every part of the world use our platforms and tools to help address their own challenges and opportunities as well as those of their communities and society at-large. Microsoft's Intelligent Cloud segment, which includes the Azure public cloud for application hosting, SQL Server, Windows Server and enterprise services generated $20.91 billion in revenue. The mix of computing devices based on form factor and screen size. In the past, option and forward contracts were used to hedge a portion of forecasted international revenue and were designated as cash flow hedging instruments. The amortization of these costs is included in cost of revenue over the estimated life of the products. We are required to estimate the fair value of the investment to determine the amount of the impairment loss. Our gaming platform is designed to provide a variety of entertainment through a unique combination of content, community, and cloud. And with our pending acquisition of Nuance Communications, well provide ambient clinical intelligence capabilities for healthcare organizations that improve the patient experience and reduce the overwhelming burden of work that physicians struggle with today. The AeroTech segment's revenues are expected to increase 10-13% from that reported in 2022. . Microsoft posted the third quarter of its 2021 financial results today, reporting revenue of $41.7 billion and a net income of $15.5 billion. 118. In fiscal years 2019, our foreign regional operating centers in Ireland, Singapore, and Puerto Rico, which are taxed at rates lower than the U.S. rate, generated 82% of our foreign income before tax, respectively. This report includes estimates, projections, statements relating to our business plans, objectives, and expected operating results that are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934. As of June 30, 2021 and 2020, long-term accounts receivable, net of allowance for doubtful accounts, was $3.4 billion and $2.7 billion, respectively, and is included in other long-term assets in our consolidated balance sheets. Table Power BI. The allocation of the purchase price to goodwill was completed as of June 30, 2019. We provide for the estimated costs of fulfilling our obligations under hardware and software warranties at the time the related revenue is recognized. Revenue is up 22 percent, and net income has . us-gaap:OperatingIncomeLoss. Microsoft Edge is our fast and secure browser that helps protect your data, with built-in shopping tools designed to save you time and money. Sales and marketing expenses include payroll, employee benefits, stock-based compensation expense, and other headcount-related expenses associated with sales and marketing personnel, and the costs of advertising, promotions, trade shows, seminars, and other programs. If you are an admin, please authenticate by logging in again. Office Commercial (Office 365 subscriptions, the Office 365 portion of Microsoft 365 Commercial subscriptions, and Office licensed on-premises), comprising Office, Exchange, SharePoint, Microsoft Teams, Office 365 Security and Compliance, and Skype for Business. With Windows 11the biggest update to our operating system in a decadewere reimagining everything from the platform to the store to help people and organizations be more productive, connected, and secure, and to build a more open ecosystem for developers and creators. Our strategy requires continued investment in datacenters and other hybrid and edge infrastructure to support our services. In its 2022 financial year, Microsoft generated 63.4 billion U.S. dollars from its productivity and business processes segment and a further 75.3 billion . Our effective tax rate for fiscal years 2021 and 2020 was 14% and 17%, respectively. Total capitalized costs to obtain a contract were immaterial during the periods presented and are included in other current and long-term assets in our consolidated balance sheets. The fifth perspective. Browse Earnings Releases: Browse Prior Earnings Releases: Fiscal Year. The components of other income (expense), net were as follows: We use derivative instruments to manage risks related to foreign currencies, equity prices, interest rates, and credit; enhance investment returns; and facilitate portfolio diversification. Information on our business strategies, financial results, and metrics for investors. Foreign currency risks related to certain non-U.S. dollar-denominated investments are hedged using foreign exchange forward contracts that are designated as fair value hedging instruments. The Company remains under IRS audit, or subject to IRS audit, for tax years subsequent to 2003. Xbox Cloud Gaming utilizes Microsofts Azure cloud technology to allow direct and on-demand streaming of games to PCs, consoles, and mobile devices, enabling gamers to take their favorites games with them and play on the device most convenient to them. Breaking down Microsoft's earnings by operational segment. Get full access to all features within our Business Solutions. With Azure Stack, organizations can extend Azure into their own datacenters to create a consistent stack across the public cloud and the intelligent edge. In addition, certain costs incurred at a corporate level that are identifiable and that benefit our segments are allocated to them. Deloitte & Touche LLP has audited our internal control over financial reporting as of June 30, 2021; their report follows. We are accelerating adoption of AI innovations from research to products. However, due to the integrated structure of our business, certain revenue recognized and costs incurred by one segment may benefit other segments. A companys internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. CALs provide access rights to certain server products, including SQL Server and Windows Server, and revenue is reported along with the associated server product. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Chief Executive Officer, We released our first annual Racial Equity Initiative: Strengthening Our Communities report, which focuses on justice reform, affordable broadband, skills and education, and support for community-based nonprofits. More broadly, we are leading the way with solutions tailored to the needs of key industries. Our ecosystem of customers and partners has stepped up to help people and organizations in every country use technology to be resilient and transform during the most trying of circumstances. Apple, Google, and Microsoft: revenue comparison 2008-2022; Therefore, we recorded a net income tax benefit of $620 million in the third quarter of fiscal year 2021 to reflect the results of the India Supreme Court decision impacting fiscal year 1996 through fiscal year 2016. Fiscal year ending June 30. To ensure our AI technologies are used responsibly and to avoid unintended consequences, we take a principled approach built on fairness, reliability and safety, privacy and security, inclusiveness, transparency, and accountability. Each allocation is measured differently based on the specific facts and circumstances of the costs being allocated. Full-year fiscal '23 estimates today expect Microsoft to earn $9.55 in EPS on $212.2 billion in revenue for expected growth in the next 6 months of 4% in EPS and 7% in revenue. Intelligent Cloud revenue increased driven by Azure. We evaluate our reporting units on an annual basis and, if necessary, reassign goodwill using a relative fair value allocation approach. In the United States, we expanded our work this year to include eight cities with particularly large broadband gaps, especially among Black and African American communities. Being a global-scale cloud, Azure uniquely offers hybrid consistency, developer productivity, AI capabilities, and trusted security and compliance. Net gains on derivatives decreased due to lower gains on foreign currency contracts. Our fair value processes include controls that are designed to ensure appropriate fair values are recorded. At Microsoft, were providing technology and resources to help our customers navigate a remote environment. These contracts are not designated as hedging instruments and are included in Other contracts in the tables below. We monitor our foreign currency exposures daily to maximize the economic effectiveness of our foreign currency hedge positions. Personalized, integrated, and relevant views of all learning opportunities on our internal learning portal, our external learning portal MS Learn, and LinkedIn Learning that is available to all employees worldwide. We test goodwill for impairment annually on May 1 at the reporting unit level, primarily using a discounted cash flow methodology with a peer-based, risk-adjusted weighted average cost of capital. SA conveys rights to new software and upgrades for perpetual licenses released over the contract period. Through our Democracy Forward Program, were working across sectors to safeguard electoral processes and defend against disinformation. We are accelerating our development of mixed reality solutions with new Azure services and devices. Making a difference in the lives of each other, our customers, and the world around us. Productivity and business processes. The components of lease expense were as follows: Supplemental cash flow information related to leases was as follows: Supplemental balance sheet information related to leases was as follows: The following table outlines maturities of our lease liabilities as of June 30, 2021: As of June 30, 2021, we have additional operating and finance leases, primarily for datacenters, that have not yet commenced of $5.4 billion and $7.3 billion, respectively. Our vision is to create economic opportunity for every member of the global workforce through the ongoing development of the worlds first Economic Graph, a digital representation of the global economy. We have completed our assessment and concluded that adoption of the new standard will not have a material impact on our consolidated financial statements. At Microsoft we have an inherently inclusive mission: to empower every person and every organization on the planet to achieve more. Current year net income and diluted EPS were positively impacted by the tax benefit related to the India Supreme Court decision on withholding taxes, which resulted in an increase to net income and diluted EPS of $620 million and $0.08, respectively. Xbox Cloud Gaming is Microsofts game streaming technology that is complementary to our console hardware and gives fans the ultimate choice to play the games they want, with the people they want, on the devices they want. Commercial cloud revenue was up 33% over last year. You need a Statista Account for unlimited access. We offer organizations the ability to ensure their data is being used only for their benefit. Cash from operations increased $16.1 billion to $76.7 billion for fiscal year 2021, mainly due to an increase in cash received from customers, offset in part by an increase in cash paid to suppliers and employees. These costs include our internal sales force compensation program and certain partner sales incentive programs as we have determined annual compensation is commensurate with annual sales activities. During fiscal year 2020, we recorded an impairment charge of $186 million to Property and Equipment, primarily to leasehold improvements, due to the closing of our Microsoft Store physical locations. When a cloud-based service includes both on-premises software licenses and cloud services, judgment is required to determine whether the software license is considered distinct and accounted for separately, or not distinct and accounted for together with the cloud service and recognized over time. , Oct 10, 2022. As a result, changes in foreign exchange rates may significantly affect revenue and expenses. The decrease from the federal statutory rate in fiscal year 2020 is primarily due to earnings taxed at lower rates in foreign jurisdictions resulting from producing and distributing our products and services through our foreign regional operations centers in Ireland and Puerto Rico, and tax benefits relating to stock-based compensation. We perform a qualitative assessment on a periodic basis and recognize an impairment if there are sufficient indicators that the fair value of the investment is less than carrying value. Our segments provide management with a comprehensive financial view of our key businesses. Revenue with cloud products like Azure, Office 365 Commercial and the commercial portion of LinkedIn amounted to $27.1 billion, an increase of $5 billion or 22 percent year over year. The components of the provision for income taxes were as follows: U.S. and foreign components of income before income taxes were as follows: The items accounting for the difference between income taxes computed at the U.S. federal statutory rate and our effective rate were as follows: We have historically paid India withholding taxes on software sales through distributor withholding and tax audit assessments in India. Once technological feasibility is established, software costs are capitalized until the product is available for general release to customers. We design our devices, from Surface to Xbox, to minimize their impact on the environment. Care is the new currency for every leader, and weve built a new framework to help our managers strengthen their teams and deliver success through empowerment and accountability. Sales and marketing expenses include payroll, employee benefits, stock-based compensation expense, and other headcount-related expenses associated with sales and marketing personnel, and the costs of advertising, promotions, trade shows, seminars, and other programs. All differences between our internal management reporting basis and accounting principles generally accepted in the United States of America (GAAP), along with certain corporate-level and other activity, are included in Corporate and Other. Product revenue includes sales from operating systems, cross-device productivity applications, server applications, business solution applications, desktop and server management tools, software development tools, video games, and hardware such as PCs, tablets, gaming and entertainment consoles, other intelligent devices, and related accessories. PSP Partners, Emma N. Walmsley 2,4 Our increasing engagement with open source software will also cause us to license our intellectual property rights broadly in certain situations. When cloud services require a significant level of integration and interdependency with software and the individual components are not considered distinct, all revenue is recognized over the period in which the cloud services are provided. We are committed to designing and marketing first-party devices to help drive innovation, create new device categories, and stimulate demand in the Windows ecosystem. The following table outlines maturities of our long-term debt, including the current portion, as of June 30, 2021: On December 22, 2017, the Tax Cuts and Jobs Act (TCJA) was enacted into law, which significantly changed existing U.S. tax law and included numerous provisions that affect our business. Commercial cloud revenue increased 34% to $69.1 billion. We conducted our audits in accordance with the standards of the PCAOB. The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. Financial metrics are calculated based on GAAP results and growth comparisons relate to the corresponding period of last fiscal year. We regularly review inventory quantities on hand, future purchase commitments with our suppliers, and the estimated utility of our inventory. The fair value of each reporting unit is estimated primarily through the use of a discounted cash flow methodology. These programs reinforce our culture and values such as collaboration and growth mindset. Archives of these events are also available. Investments with maturities beyond one year may be classified as short-term based on their highly liquid nature and because such marketable securities represent the investment of cash that is available for current operations. We generally fund research at the corporate level to ensure that we are looking beyond immediate product considerations to opportunities further in the future. Total. We recorded a provisional net charge of $13.7 billion related to the enactment of the TCJA in fiscal year 2018 and adjusted the provisional net charge by recording additional tax expense of $157 million in fiscal year 2019 pursuant to Securities and Exchange Commission Staff Accounting Bulletin No. services revenue growth, Revenue from Windows Commercial products and cloud services, comprising volume licensing of the Windows operating system, Windows cloud services, and other Windows commercial offerings, Revenue from Surface devices and accessories, Revenue from Xbox content and services, comprising digital transactions, Xbox Game Pass and other subscriptions, video games, third-party video game royalties, cloud services, and advertising, Search advertising revenue, excluding TAC, growth, Revenue from search advertising excluding traffic acquisition costs (TAC) paid to Bing Ads network publishers. Chairman and Chief Executive Officer, Extended disruptions at these suppliers could lead to a similar disruption in our ability to manufacture devices on time to meet consumer demand. At Microsoft, we push the boundaries of what is possible through a broad range of research and development activities that seek to identify and address the changing demands of customers and users, industry trends, and competitive forces. Interest expense decreased due to a decrease in outstanding long-term debt due to debt maturities. Interest is paid semi-annually, except for the Euro-denominated debt, which is paid annually. And Im excited to see new PCs from Surface and our OEM ecosystem ship with Windows 11 this holiday season that include the latest innovations in touch, pen, and voice, as well as new breakthroughs in both accessibility and sustainability. Assets and liabilities measured at fair value on a recurring basis using unobservable inputs are an immaterial portion of our portfolio. Microsoft forecast Intelligent Cloud revenue of $21.1 billion to $21.35 billion for its fiscal fourth quarter, driven by strong growth in its Azure platform. We want our customers and partners to build their own digital capability and become independent with us, not dependent on us. Azure Arc simplifies governance and management by delivering a consistent multi-cloud and on-premises management platform. We contribute fifty cents for each dollar a participant contributes into the plans, with a maximum employer contribution of 50% of the IRS contribution limit for the calendar year. As of June 30, 2021 and 2020, equity investments without readily determinable fair values measured at cost with adjustments for observable changes in price or impairments were $3.3 billion and $1.4 billion, respectively. Executive Vice President and Chief Financial Officer, Alice L. Jolla Organizations of all sizes have digitized business-critical functions, redefining what they can expect from their business applications. Finally, our Occupational Health and Safety program helps ensure employees can stay safe while they are working. It also gives us the freedom to decide which modifications and enhancements are most important and when they should be implemented. Shares repurchased during the third quarter of fiscal year 2020 were under the share repurchase programs approved on both September 20, 2016 and September 18, 2019. Revenue and costs are generally directly attributed to our segments. The fair values of these investments approximate their carrying values. As of June 30, 2021 and 2020, our financing receivables, net were $4.4 billion and $5.2 billion, respectively, for short-term and long-term financing receivables, which are included in other current assets and other long-term assets in our consolidated balance sheets. Together with our partners, we have reached more than 47 million people to date, across 250 countries, but the work doesnt stop there. Microsoft Revenue by Segment. Unearned revenue is generally invoiced annually at the beginning of each contract period for multi-year agreements and recognized ratably over the coverage period. Instances, we may use information such as video streaming platforms to ensure that we will collectively achieve much... Are cautioned not to place undue reliance on forward-looking statements, which ended on June 30, 2021 ; report... Of computing devices based on the present value of each reporting unit is estimated through! 534 million or 8 % driven by demand for Microsoft 365 server software is integrated infrastructure. Recurring microsoft revenue by segment using unobservable inputs are an immaterial portion of our foreign currency exposures daily to maximize economic! 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