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Microsoft: Financial AnalysisSep 04Dec 04Mar 05Jun 05Sep 05Dec 05Mar 06Jun 06Sep 06Dec 06Mar 07Jun 07Sep 07Dec-07Mar-08Jun-08EFY 2005FY 2006FY 2007FY 2008EFY 2009ECY 2005CY 2006CY 2007ECY 2008ECY 2009E

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Analysis By:

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Silicon Alley Insider

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JuneJuneJuneJuneJune

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INCOME STATEMENTSep 04Dec 04Mar 05Jun 05Sep 05Dec 05Mar 06Jun 06Sep 06Dec 06Mar 07Jun 07Sep-07Dec-07Mar-08Jun-08EFY 2005FY 2006FY 2007FY 2008EFY 2009ECY 2005CY 2006CY 2007ECY 2008ECY 2009E

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Revenues$9,189$10,818$9,620$10,161$9,741$11,837$10,900$11,804$10,811$12,542$14,398$13,371$13,762$16,367$14,454$15,522$39,788$44,282$51,122$59,569$66,516$41,359$46,057$57,571$62,753$69,655

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Y/Y Change6%9%13%16%11%6%32%13%27%30%0%16%11%15%17%12%11%25%9%11%

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Cost of Revenue$1,405$1,875$1,363$1,388$1,253$2,239$2,098$2,130$1,669$3,620$2,140$3,237$2,675$3,543$2,514$3,260$6,031$7,720$10,666$11,914$13,303$6,243$9,517$11,514$11,295$12,538

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Margin15%17%14%14%13%19%19%18%15%29%15%24%19%22%17%21%15%17%21%20%20%15%21%20%18%18%

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Gross Profit$7,784$8,943$8,257$8,773$8,488$9,598$8,802$9,674$9,142$8,922$12,258$10,134$11,087$12,824$11,940$12,262$33,757$36,562$40,456$47,655$53,213$35,116$36,540$46,057$51,457$57,117

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Margin85%83%86%86%87%81%81%82%85%71%85%76%81%78%83%79%85%83%79%80%80%85%79%80%82%82%

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R&D$1,530$1,421$1,482$1,664$1,515$1,591$1,617$1,861$1,786$1,637$1,750$1,948$1,837$1,885$2,035$2,018$6,097$6,584$7,121$8,340$9,312$6,252$6,901$7,484$9,413$10,448

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Margin17%13%15%16%16%13%15%16%17%13%12%15%13%12%14%13%15%15%14%14%14%15%15%13%15%15%

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Sales & Marketing$1,664$2,122$2,070$2,707$1,945$2,689$2,362$2,822$2,191$2,999$2,936$3,329$2,614$3,392$3,155$3,415$8,563$9,818$11,455$12,509$14,634$9,411$10,374$12,666$13,806$15,324

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Margin18%20%22%27%20%23%22%24%20%24%20%25%19%21%22%22%22%22%22%21%22%23%23%22%22%22%

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General & Administrative$1,096$651$1,376$1,413$982$661$1,005$1,110$664$814$983$868$718$1,066$2,341$931$4,536$3,758$3,329$3,574$5,321$4,432$3,593$3,454$3,765$4,179

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Margin12%6%14%14%10%6%9%9%6%6%7%6%5%7%16%6%11%8%7%6%8%11%8%6%6%6%

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Operating Income$3,494$4,749$3,329$2,989$4,046$4,657$3,818$3,881$4,501$3,472$6,589$3,989$5,918$6,481$4,409$5,898$14,561$16,402$18,551$23,232$23,946$15,021$15,672$22,453$24,474$27,166

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Margin38%44%35%29%42%39%35%33%42%28%46%30%43%40%31%38%37%37%36%39%36%36%34%39%39%39%

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Investment Income & Other$279$420$496$872$506$480$427$377$567$333$382$295$298$339$401$370$2,067$1,790$1,577$0$0$2,354$1,704$0$0$0

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Income before provision for Income tax$3,773$5,169$3,825$3,861$4,552$5,137$4,245$4,258$5,068$3,805$6,971$4,284$6,216$6,820$4,810$6,268$16,628$18,192$20,128$23,232$23,946$17,375$17,376$22,453$24,474$27,166

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Provision for income taxes$1,245$1,706$1,262$161$1,411$1,484$1,338$1,430$1,563$1,179$2,045$1,249$1,927$2,113$422$1,880$4,374$5,663$6,036$7,434$7,423$4,318$5,510$6,736$7,587$8,421

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% of EBT33%33%33%4%31%29%32%34%31%31%29%29%31%31%9%30%26%31%30%32%31%25%32%30%31%31%

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Net Income$2,528$3,463$2,563$3,700$3,141$3,653$2,907$2,828$3,505$2,626$4,926$3,035$4,289$4,707$4,388$4,388$12,254$12,529$14,092$15,798$16,523$13,057$11,866$15,717$16,887$18,744

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Margin28%32%27%36%32%31%27%24%32%21%34%23%31%29%30%28%31%28%28%27%25%32%26%27%27%27%

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EPS (Diluted)$0.32$0.32$0.23$0.34$0.29$0.34$0.28$0.28$0.35$0.26$0.50$0.31$0.45$0.50$0.47$0.47$1.22$1.19$1.42$1.70$1.87$1.21$1.17$1.63$1.80$2.06

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Y/Y Change-8%7%19%-19%18%-23%79%14%30%88%-7%51%

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Shares Out (Diluted)10,92010,95610,93110,81910,72210,63810,41510,25510,1009,9429,8629,6579,5139,5039,4289,27110,90610,5319,8869,2938,82810,77810,1789,6699,3799,098

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Y/Y Change-2%-3%-5%-5%-6%-7%-5%-6%-6%-4%-4%-4%-3%-6%-6%-5%-6%-5%-3%-3%

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PRODUCT SUMMARYSep 04Dec 04Mar 05Jun 05Sep 05Dec 05Mar 06Jun 06Sep 06Dec 06Mar 07Jun 07Sep 07Dec 07Mar 08Jun 08E20052006200720082009

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Revenue

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Client$3,316$2,601$5,315$3,817$4,138$4,335$4,025$4,428$15,049$16,945$18,706

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Y/Y Change25%67%-24%16%13%10%

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% of Total31%21%37%29%30%26%28%29%30%28%28%

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Server & Tools$2,496$2,843$2,748$3,084$2,900$3,278$3,255$3,547$11,171$12,994$14,644

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Y/Y Change16%15%18%15%16%13%

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% of Total23%23%19%23%21%20%23%23%22%22%22%

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Online Services Business$536$625$403$677$671$863$843$1,489$2,241$3,372$4,025

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Y/Y Change25%38%109%120%50%19%

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% of Total5%5%3%5%5%5%6%10%4%6%6%

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MBD$3,419$3,500$4,786$4,628$4,111$4,811$4,745$4,582$16,333$18,691$20,510

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Y/Y Change20%37%-1%-1%14%10%

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% of Total32%28%34%35%30%29%33%30%32%31%31%

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Entertainment and Devices$1,011$2,969$936$1,153$1,929$3,060$1,576$1,464$6,069$7,554$8,631

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Y/Y Change91%3%68%27%24%14%

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% of Total9%24%7%9%14%19%11%9%12%13%13%

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Unallocated and Other$33$4$10$12$13$20$10$12$59$13$0

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Y/Y Change-61%400%0%1%-78%-100%

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% of Total0%0%0%0%0%0%0%0%0%0%0%

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Total$10,811$12,542$14,198$13,371$13,762$16,367$14,454$15,522$50,922$59,569$66,516

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Y/Y Change27%30%2%16%

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Operating Income

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Client$2,660$1,858$4,250$2,789$3,367$3,358$3,097$11,557

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Y/Y Change27%81%-27%

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Margin80%71%80%73%81%77%77%

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% of Total59%54%65%70%57%52%70%62%

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Server & Tools$771$980$912$988$962$1,172$1,092$3,651

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Y/Y Change25%20%20%

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Margin31%34%33%32%33%36%34%

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% of Total17%28%14%25%16%18%25%20%

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OSB-$102-$100-$149-$186-$264-$245-$228-$537

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Y/Y Change159%145%53%

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Margin-19%-16%-37%-27%-39%-28%-27%

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% of Total-2%-3%-2%-5%-4%-4%-5%-3%

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MBD$2,227$2,137$3,354$2,973$2,694$3,185$3,138$10,691

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Y/Y Change21%49%-6%

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Margin65%61%70%64%66%66%66%

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% of Total50%62%51%75%46%49%71%58%

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EDD-$142-$320-$345-$1,245$165$357$89-$2,052

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Y/Y Change-216%-212%-126%

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Margin-14%-11%-37%-108%9%12%6%

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% of Total-3%-9%-5%-31%3%6%2%-11%

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Corporate Level Activity-$940-$1,083-$1,433-$1,330-$1,006-$1,346-$2,779-$4,786

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Y/Y Change7%24%94%

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% of Total-21%-31%-22%-33%-17%-21%-63%-26%

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Total$4,474$3,472$6,589$3,989$5,918$6,481$4,409$18,524

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Y/Y Change32%87%-33%

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CASH FLOW

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Cash Flow From Operations$4,007$3,619$5,003$3,976$4,329$2,231$4,563$3,281$4,061$2,042$7,291$4,402$5,878$4,567$7,082

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Y/Y Change45%124%-3%

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% of Total44%33%52%39%44%19%42%28%38%16%51%33%43%28%

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Capital Expenditures$173$176$203$260$213$318$302$745$411$572$461$820$510$695$759

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Y/Y Change

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% of Revenue2%2%2%3%2%3%3%6%4%5%3%6%4%4%

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FREE CASH FLOW$3,834$3,443$4,800$3,716$4,116$1,913$4,261$2,536$3,650$1,470$6,830$3,582$5,368$3,872$6,323

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Y/Y Change

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Margin42%32%50%37%42%16%39%21%34%12%47%27%39%24%

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BALANCE SHEET

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Cash, Equivalents + Marketable Secs.$11,141$4,556$3,782$4,851$2,974$4,083$4,351$6,714$23,341

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Inventory$608$304$340$491$726$1,003$1,113$1,478$2,521$1,725$1,750$1,127$1,178$755

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Y/Y Change

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% of Revenue7%3%4%5%7%8%10%13%23%14%12%8%9%5%

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Debt (Current + Long-Term)$0$0$0$0$0$0$0$0$0$0$0$0$0$0

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VALUATION

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Price$30.01

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Shares Outstanding (Diluted)10,920

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MARKET CAPITALIZATION$327,709

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Market Capitalization$327,709

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+ Debt0

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- Cash$11,141

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ENTERPRISE VALUE$316,568

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VALUATION RATIOSEPSP/E

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P/E:

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CY 2007E$1.6318x

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CY 2008E$1.8017x

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CY 2009E$2.0615x

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