Business Model

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Business Model

• John ConnorsChief Financial OfficerMicrosoft
  Corporation

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Record Revenue, But Not ProfitsRevenue and
profits
25.3B
10 Growth
7.3B
IPO
FY86
FY01
3
Market Cap and P/Es(In billions, fully diluted
shares)
This year (7/25/01)
Last year (7/25/00)
Mkt cap P/E 1. GE 441 32 2.
Microsoft 375 49 3. Exxon 291 34 4.
Pfizer 256 39 5. Citigroup 252 19 6.
Wal-Mart 247 39 7. Intel 203 38 8.
AIG 195 33 9. AOL TW 193 n/a 10.
IBM 183 22
Mkt cap P/E 1. GE 521 45 2.
Cisco 500 190 3. Intel 482 60 4.
Microsoft 376 40 5. Exxon 267 21 6.
Wal-Mart 263 45 7. Nokia 256 86 8.
Citigroup 243 20 9. Oracle 231 127 10.
Nortel 230 n/a
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Product Revenue And GrowthFY01
Desktop applications 9.5B - 3
Other 0.9B - (1)
Consumer, software, services, and devices 2B -
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Desktop platforms 9.4B - 10
Enterprise 4.8B - 18
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Net Revenue billions
Growth
Growth
M
FY02
14 -17
28.8-29.5
3.5- 4.2
FY01
10
2.3
25.3
FY00
16
3.2
23.0
FY99
29
4.5
19.8
FY98
28
3.3
15.3
FY97
32
2.9
11.9
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How Did/Will We Grow?Revenue growth (absolute )
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PC Shipment Growth
50
40
30
20
10
0
FY97
FY98
FY99
FY00
FY01
FY02
Source IDC
8
Client PlatformsDesktop platforms revenue
9
Windows ClientWindows NTW/2000 penetration
60
?
50
40
30
20
Q02-4
Q99-4
Q00-4
Q01-4
10
Windows Client

• Windows XP
• Windows XP RC2 ships within days
• Sizing the opportunity

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Desktop ApplicationsRevenue
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Office Sustainability
Office licenses 145M
Opportunity
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Enterprise Software SvcsRevenue
14
Windows NT Server/2000Market share
60
45
30
15
0
FY99
FY00
FY01
Source IDC
15
.NET Enterprise ServersThe arsenal grows
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Volume LicensingEAs, select, and open revenue
40 of total revenue

• Open licensing
• Select licensing
• Enterprise agreements

FY97
FY01
17
Consumer Software, Services, Devices Revenue
18
Consumer InvestmentStill investing, but progress
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Xbox Business Model

• Five year business cycle
• 4.5 6m units in FY02
• Major investment in FY02
• Economics improve as installed base builds
• Software
• First party margin Third party royalties
• Attach rate per console is key metric
• Online service opportunity
• Platform evangelism is key

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COGS MixProduct mix shift
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RD InvestmentFueling future growth
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SM Investment
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Strategic Investments
Represents historical cost basis of all equity
investments, JVs, and acquisitions.
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Balance Sheet(Dollars in billions)
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Deploying MSs Cash

• MSFT Dilution Management

• Additional strategic investments
• RD and business expansion

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Risk Factors
Economy
PC growth rates
Execution
Ongoing litigation regulatory environment
Focused competitors
Valuation and P/E
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Microsofts Strengths

• Compelling technology vision
• Strong and deep leadership team
• Strong fundamentals
• Conservative financial approach
• Very very focused entering FY02
• Tenacity and perseverance

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