Assets and liabilities measured at fair value on a recurring basis using unobservable inputs are an immaterial portion of our portfolio. Refer to the Non-GAAP Financial Measures section below for a reconciliation of our financial results reported in accordance with GAAP to non-GAAP financial results. There was no impact to our consolidated financial statements. Price as of February 28, 2023, 12:39 p.m. 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. Payment terms and conditions vary by contract type, although terms generally include a requirement of payment within 30 to 60 days. Securities held in our equity investments portfolio are subject to market price risk. Given the complexity and the subjective nature of the transfer pricing issues that remain unresolved with the IRS, evaluating managements estimates relating to their determination of uncertain tax positions required extensive audit effort and a high degree of auditor judgment, including involvement of our tax specialists. We manage the average maturity of the fixed-income portfolio to achieve economic returns that correlate to certain global fixed-income indices. [Online]. Intelligent Cloud. Nine of these cases were filed in 2002 and are consolidated for certain pre-trial proceedings; the remaining cases are stayed. We evaluated the reasonableness of managements estimate of stand-alone selling prices for products and services that are not sold separately. Were helping companies make 250,000 skills-based hires this yearensuring those who learn digital skills can convert them into jobs and opportunity. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. . And with Windows 365, we are creating a new category: the cloud PC. 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. Premium Subscriptions enables professionals to manage their professional identity, grow their network, and connect with talent through additional services like premium search. The Company offers customers the ability to acquire multiple licenses of software products and services, including cloud-based services, in its customer agreements through its volume licensing programs. In 2019 the growth curve flattened and brought almost $7 billion, and in 2020 the revenue was $8 billion. 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 fair values of these investments approximate their carrying values. Economic Conditions, Challenges, and Risks. In June 2021, Microsoft announced the next generation of Windows Windows 11. Microsoft Teams is enabling rapid digital transformation by giving people a single tool to chat, call, meet, and collaborate. $ 22,247. Additionally, we have agreed to cover damages resulting from breaches of certain security and privacy commitments in our cloud business. These metrics provide strategic product insights which allow us to assess the performance across our commercial and consumer businesses. Net recognized gains (losses) on debt investments were as follows: Net recognized gains (losses) on equity investments were as follows: The components of investments were as follows: Equity investments presented as Other in the tables above include investments without readily determinable fair values measured using the equity method or measured at cost with adjustments for observable changes in price or impairments, and investments measured at fair value using net asset value as a practical expedient which are not categorized in the fair value hierarchy. Microsoft has posted at least 16 consecutive quarters of YOY earnings growth since Q3 FY 2018. Additionally, we have seen growth in our Black- and African American-owned supplier base and in Black- and African American-owned technology partners in the Microsoft Partner Network, and we launched the Black Channel Partner Alliance community to support partners onboarding to the Microsoft Cloud and to unlock partner benefits for co-selling with Microsoft. And yet, as I reflect on what has been a very challenging year for so manyone that will be forever remembered as a heartbreaking chapter in our historyI find reasons to be hopeful. And with Azure for Operators, we provide telecom operators and enterprises with the ultra-low latency cloud computing power at the edge needed for breakthrough scenarios like precision inventory tracking at ports and production lines that automatically adjust to changing demand. From LinkedIn profiles within Office, to LinkedIn Learning courses within Microsoft Viva, and LinkedIn Sales Navigator leads within Dynamics 365, we continue to bring the power of LinkedIn and Microsoft together to transform how people learn, sell, and connect. We continued to pay hourly service providers such as cleaning and reception staff who may have otherwise been furloughed. Prior to the acquisition of NDS, financial results associated with joint strategic initiatives with Nokia were reflected in the devices and consumer licensing segment. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. In addition to LinkedIns free services, LinkedIn offers monetized solutions: Talent Solutions, Marketing Solutions, Premium Subscriptions, Sales Solutions, and Learning Solutions. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Employees may purchase shares having a value not exceeding 15% of their gross compensation during an offering period. We operate our business and report our financial performance using three segments: Productivity and Business Processes, Intelligent Cloud, and More Personal Computing. Azure SQL Database makes it possible for customers to take SQL Server from their on-premises datacenter to a fully managed instance in the cloud to utilize built-in AI. We invite you to submit any questions via the proxy voting site at www.proxyvote.com. Other comprehensive income (loss), net of tax: Total cash, cash equivalents, and short-term investments, Accounts receivable, net of allowance for doubtful accounts of, Property and equipment, net of accumulated depreciation of, Common stock and paid-in capital shares authorized 24,000; outstanding, Total liabilities and stockholders equity. For certain equipment leases, such as vehicles, we account for the lease and non-lease components as a single lease component. Azure revenue is mainly affected by infrastructure-as-a-service and platform-as-a-service consumption-based services, and per user-based services such as Enterprise Mobility + Security. Foreign currency risks related to certain Euro-denominated debt are hedged using foreign exchange forward contracts that are designated as cash flow hedging instruments. As of June 30, 2021, 2020, and 2019, we had accrued interest expense related to uncertain tax positions of $4.3 billion, $4.0 billion, and $3.4 billion, respectively, net of income tax benefits. It also provides support, tools, training, and other licensing benefits to help customers deploy and use software efficiently. To date, weve committed cash, technology, and other resources with a value of more than $410 million to support ongoing COVID-19 response efforts. Revenue increased $25.1 billion or 18% driven by growth across each of our segments. Among Microsoft Corporation, the S&P 500 Index and the NASDAQ Computer Index. We enter into contracts that can include various combinations of products and services, which are generally capable of being distinct and accounted for as separate performance obligations. How the Critical Audit Matter Was Addressed in the Audit. With more than 60 datacenter regionsincluding 15 new regions added this year on five continentswe are delivering faster access to data and cloud services while addressing critical data residency requirements. These contracts are not designated as hedging instruments and are included in Other contracts in the tables below. Productivity and Business Processes revenue increased driven by Office 365 Commercial and LinkedIn. 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 managers strive to model our culture and values in their actions, to coach their teams to define objectives and adapt and learn, and to care deeply for their employees, seeking to understand their capabilities, ambitions, and invest in their growth. We have more than doubled our percentage share of transaction volume with Black- and African American-owned financial institutions and increased our deposits with Black- and African American-owned minority depository institutions, enabling increased funds into local communities. 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. Windows, including Windows OEM licensing and other non-volume licensing of the Windows operating system; Windows Commercial, comprising volume licensing of the Windows operating system, Windows cloud services, and other Windows commercial offerings; patent licensing; Windows Internet of Things; and MSN advertising. Financial metrics are calculated based on GAAP results and growth comparisons relate to the corresponding period of last fiscal year. Every organization is looking to digitize their end-to-end operationsfrom sales and customer service to supply chain managementso they can rapidly adapt to changing market dynamics. The above table excludes shares repurchased to settle employee tax withholding related to the vesting of stock awards of $4.4 billion, $3.3 billion, and $2.7 billion for fiscal years 2021, 2020, and 2019, respectively. statistic alerts) please log in with your personal account. We exclusively licensed GPT-3, allowing us to leverage its technical innovations to deliver advanced AI solutions for our customers, as well as create new solutions that harness the power of advanced natural language generation. January 26, 2022, 12:36 PM EST. We use a single amount to estimate SSP for items that are not sold separately, including on-premises licenses sold with SA or software updates provided at no additional charge. And Microsoft Mesh enables developers to build immersive, multiuser, cross-platform mixed reality apps. MSN advertising includes both native and display ads. The investments we make in sustainability carry through to our products, services, and devices. These manufacturers, many of which are also current or potential partners and customers, include Apple and our Windows OEMs. The segments enable the alignment of strategies and objectives across the development, sales, marketing, and services organizations, and they provide a framework for timely and rational allocation of resources within businesses. These financial statements are the responsibility of the Companys management. Search advertising revenue, excluding traffic acquisition costs, increased 13%. Partnerships, Satya Nadella If you are an admin, please authenticate by logging in again. If market, industry, and/or investee conditions deteriorate, we may incur future impairments. The financial results of ZeniMax have been included in our consolidated financial statements since the date of the acquisition. Refer to Note 1 Accounting Policies of the Notes to Financial Statements for further discussion. Supplied by Refinitiv. We also compete with other providers of entertainment services such as video streaming platforms. Changes in fair value, excluding credit losses and impairments, are recorded in other comprehensive income. Partners in this program can easily package their own products and services to directly provision, manage, and support their customer subscriptions. The Surface family includes Surface Book 3, Surface Laptop Go, Surface Go 2, Surface Pro 7, Surface Laptop 4, Surface Pro X, Surface Studio 2, and Surface Duo. We offer an array of services, including cloud-based solutions that provide customers with software, services, platforms, and content, and we provide solution support and consulting services. ESAs are also typically authorized as LSPs and operate as resellers for our other volume licensing programs. We use different programs designed to provide flexibility for organizations of various sizes. Microsoft aims to recruit, develop, and retain diverse, world-changing talent. Microsoft has introduced a Hybrid Workplace Flexibility Guide to better support managers and employees as they adapt to new ways of working that shift paradigms, embrace flexibility, promote inclusion, and drive innovation. Celanese Corporation CE reported earnings from continuing operations of $7.03 per share in the fourth quarter of 2022, up 46% from . ", Microsoft, Microsoft's revenue from 2012 to 2022 financial years, by segment (in billion U.S. dollars) Statista, https://www.statista.com/statistics/273482/segment-revenue-of-microsoft/ (last visited March 01, 2023), Microsoft's revenue from 2012 to 2022 financial years, by segment (in billion U.S. dollars) [Graph], Microsoft, July 26, 2022. Growth in Devices is dependent on total PC shipments, the ability to attract new customers, our product roadmap, and expanding into new categories. Our ongoing survey data shows employees value the flexibility related to work location, work site, and work hours, and while many indicate they intend to return to a worksite once conditions permit, they also intend to adjust hours or spend some portions of workweeks working remotely. This will give organizations greater flexibility and a more secure way to empower employees to be productive and connected, regardless of their location. It extends to our investments in security, and our belief that the public and private sectorsincluding tech companiesmust be transparent so we can work together on a coordinated global response. Based on its revenue breakdown, Microsoft's Productivity and Business Processes segment is its second-largest segment accounting for 32.1% of revenue in 2021. Dynamics revenue is driven by the number of users licensed and applications consumed, expansion of average revenue per user, and the continued shift to Dynamics 365, a unified set of cloud-based intelligent business applications, including Power Apps and Power Automate. Digital transformation that was projected to happen over the next 10 years is happening today. Microsoft annual revenue for 2022 was $198.27B, a 17.96% increase from 2021. Commercial competitors for our server applications for PC-based distributed client-server environments include CA Technologies, IBM, and Oracle. Commercial cloud gross margin percentage increased 4 points to 71% driven by gross margin percentage improvement in Azure and the change in estimated useful lives of our server and network equipment, offset in part by sales mix shift to Azure. In making this judgment, we employ a systematic methodology that considers available quantitative and qualitative evidence in evaluating potential impairment of our investments. The Companys long-term income taxes liability includes uncertain tax positions related to transfer pricing issues that remain unresolved with the Internal Revenue Service (IRS). Property and equipment is stated at cost less accumulated depreciation, and depreciated using the straight-line method over the shorter of the estimated useful life of the asset or the lease term. Research and development expenses increased $1.4 billion or 8% driven by investments in cloud engineering. Long-lived assets, excluding financial instruments and tax assets, classified by the location of the controlling statutory company and with countries over 10% of the total shown separately, were as follows: REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM, To the Stockholders and the Board of Directors of Microsoft Corporation. No instances of impairment were identified in our May 1, 2021, May 1, 2020, or May 1, 2019 tests. Net income fell 12% to . Continuing . Once an investment is determined to be impaired, an impairment charge is recorded in other income (expense), net. Unearned revenue comprises mainly unearned revenue related to volume licensing programs, which may include SA and cloud services. We undertake no obligation to update or revise publicly any forward-looking statements, whether because of new information, future events, or otherwise. Select Plus agreements are designed for government and academic organizations to acquire on-premises licenses at any affiliate or department level, while realizing advantages as one organization. Our future opportunity depends on reaching and empowering all communities, and we are committed to taking action to help address racial injustice and inequity. Recent Accounting Guidance Not Yet Adopted. Apple, Google, and Microsoft: revenue comparison 2008-2022; Windows original equipment manufacturer licensing (Windows OEM) revenue increased slightly. Alphabet. In other words, based on revenue, SpaceX is now more a satellite company than a . Intercompany transactions and balances have been eliminated. Both numbers easily beat analyst estimates. Certain acquired net operating loss carryforwards are subject to an annual limitation but are expected to be realized with the exception of those which have a valuation allowance. RSUs generally vest ratably over a service period of four years. Ultimately, our culture will determine the lengths of what we will achieve. The leading indicator of digital transformation success can be measured by an organizations ability to build predictive and analytical power. We report our financial performance based on the following segments: Productivity and Business Processes, Intelligent Cloud, and More Personal Computing. Gross income from the Rental . We disclose metrics to enable investors to evaluate progress against our ambitions, provide transparency into performance trends, and reflect the continued evolution of our products and services. Our strategy requires continued investment in datacenters and other hybrid and edge infrastructure to support our services. Office Consumer products and cloud services revenue increased 10% and Microsoft 365 Consumer subscribers increased to 51.9 million. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. And in the first year of our commitment to address inequity and racial injustice, we are well on our way to doubling the number of Black and African American, Hispanic, and Latinx employees in leadership positions at Microsoft in the United States by 2025. Before releasing new software platforms, and as we make significant modifications to existing platforms, we provide application vendors with a range of resources and guidelines for development, training, and testing. Windows Commercial products and cloud services revenue increased 14% driven by demand for Microsoft 365. Dynamics products and cloud services revenue increased 25% driven by Dynamics 365 growth of 43%. We bring technology and products together into experiences and solutions that unlock value for our customers. SMB segment and subsegments. Our success is highly dependent on our ability to attract and retain qualified employees. They also support new startups, improve educational and health outcomes, and empower human ingenuity. 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. Yet the fashion and leather goods segment (comprising brands like Fendi and Louis Vuitton) is the major one, generating over 39 billion in . Principal currency exposures include the Euro, Japanese yen, British pound, Canadian dollar, and Australian dollar. But our ability to make sense of data is growing more difficult as the volume, velocity, and variety expand. "Microsoft's revenue from 2012 to 2022 financial years, by segment (in billion U.S. Source:Microsoft. As of June 30, 2021, we had federal, state, and foreign net operating loss carryforwards of $304 million, $1.3 billion, and $2.0 billion, respectively. Much of our segment level research and development is coordinated with other segments and leveraged across the Company. These obligations did not have a material impact in our consolidated financial statements during the periods presented. Sales Solutions help companies strengthen customer relationships, empower teams with digital selling tools, and acquire new opportunities. Executive Vice President, Chief Commercial Officer, Bradford L. Smith The allocation of the purchase price to goodwill was completed as of June 30, 2019. The standard will be effective for us beginning July 1, 2021. In our 2020 Diversity and Inclusion Report, we reported that all racial and ethnic minority employees in the U.S. combined earn $1.006 for every $1.000 earned by their white counterparts, that women in the U.S. earn $1.001 for every $1.000 earned by their counterparts in the U.S. who are men, and women in the U.S. plus our ten other largest employee geographies (Australia, Canada, China, France, Germany, India, Ireland, Israel, Japan, and United Kingdom) combined earn $1.000 for every $1.000 by men in these countries. However, just like how . Quarter. Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases. The fair values of these investments are determined based on valuation techniques using the best information available, and may include quoted market prices, market comparables, and discounted cash flow projections. All three have been certified on behalf of Canadian indirect purchasers who acquired licenses for Microsoft operating system software and/or productivity application software between 1998 and 2010. Our management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. The effort surpassed its initial goals and has been expanded with a new emphasis on connecting learners with jobs that help put their new training to use and connecting employers with skilled job seekers they might not find in traditional networks. Revenue from consulting services is recognized as services are provided. Changes in value are recorded in other income (expense), net. These operating and finance leases will commence between fiscal year 2022 and fiscal year 2026 with lease terms of 1 year to 15 years. Gross margin and operating income included a favorable foreign currency impact of 2% and 3%, respectively. Azure faces diverse competition from companies such as Amazon, Google, IBM, Oracle, VMware, and open source offerings. The valuation allowance disclosed in the table above relates to the foreign net operating loss carryforwards and other net deferred tax assets that may not be realized. Depreciation expense declined in fiscal year 2021 due to the change in estimated useful lives of our server and network equipment. We believe our gaming platform is effectively positioned against, and uniquely differentiated from, competitive products and services based on significant innovation in hardware architecture, user interface, developer tools, online gaming and entertainment services, and continued strong exclusive content from our own first-party game franchises as well as other digital content offerings. We offer integrated, end-to-end capabilities to protect people and organizations. In addition to the extraordinary steps and programs relating to COVID-19, our comprehensive benefits package includes many physical, emotional, and financial wellness programs including counseling through the Microsoft CARES Employee Assistance Program, flexible fitness benefits, savings and investment tools, adoption assistance, and back-up care for children and elders. The aggregate changes in the gross unrecognized tax benefits related to uncertain tax positions were as follows: Unearned revenue by segment was as follows: Changes in unearned revenue were as follows: Revenue allocated to remaining performance obligations, which includes unearned revenue and amounts that will be invoiced and recognized as revenue in future periods, was $146 billion as of June 30, 2021, of which $141 billion is related to the commercial portion of revenue. GitHub provides a collaboration platform and code hosting service for developers. Microsoft posted the first quarter of its 2022 financial results today, reporting revenue of $45.3 billion and a net income of $20.5 billion (GAAP). We will include as many of your questions as possible during the Q&A session of the meeting and will provide answers to questions on the Microsoft Investor Relations website under the Annual Meeting page. Growth depends on our ability to reach new users, add value to our core product set, and continue to expand our product and service offerings into new markets. Goodwill is tested for impairment at the reporting unit level (operating segment or one level below an operating segment) on an annual basis (May 1 for us) and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. Constraints in the supply chain of device components. Windows OEM revenue is impacted significantly by the number of Windows operating system licenses purchased by OEMs, which they pre-install on the devices they sell. We distribute our products and services through OEMs that pre-install our software on new devices and servers they sell. Such costs related to software development are included in research and development expense until the point that technological feasibility is reached, which for our software products, is generally shortly before the products are released to production. Our principal audit procedures to evaluate managements estimates of uncertain tax positions related to unresolved transfer pricing issues included the following: /s/DELOITTE& TOUCHE LLP Our skills initiative brings together learning resources, certification opportunities, and job-seeker tools from LinkedIn, GitHub, and Microsoft Learn, and is built on data insights drawn from LinkedIns Economic Graph. We are investing significant resources in: Our future growth depends on our ability to transcend current product category definitions, business models, and sales motions. The adoption of the standard did not have a material impact on our consolidated financial statements. All differences between our internal management reporting basis . Operating income increased $17.0 billion or 32% driven by growth across each of our segments and the change in estimated useful lives of our server and network equipment. Call us toll-free at (800) 285-7772 or outside the United States, call (425) 706-4400. We aspire to create a culture where employees are encouraged to be curious, to experiment, and to share things they learn. We invest in a range of emerging technology trends and breakthroughs that we believe offer significant opportunities to deliver value to our customers and growth for the Company. The Google Cloud revenue segment generated 9.3 percent of the company's revenues, up from 4.3 percent in 2018. . Our effective tax rate for fiscal years 2021 and 2020 was 14% and 17%, respectively. Our Enterprise Mobility + Security offerings also compete with products from a range of competitors including identity vendors, security solution vendors, and numerous other security point solution vendors. Padmasree Warrior 2 Our gaming platform competes with console platforms from Nintendo and Sony, both of which have a large, established base of customers. We have operations centers that support operations in their regions, including customer contract and order processing, credit and collections, information processing, and vendor management and logistics. Assets Recognized from Costs to Obtain a Contract with a Customer. Xbox Game Pass is a community with access to a curated library of over 100 first- and third-party console and PC titles. Xbox Cloud Gaming is now available on PCs, as well as phones and tablets, and later this year will come to the console. Microsoft just announced its results for FY22 Q4, which ended on June 30, 2022. , many of which are also current or potential partners and customers include... Contract with a customer measured by an organizations ability to attract and retain diverse, world-changing talent on new and... 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