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MS annual report reckons trials won't hurt company

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Microsoft's FY results were announced in July, but the annual report which has just been released sometimes gives some interesting insights into how Microsoft would like to be perceived, if not what is actually happening. Revenue for the year was $19.747 billion (up 29 per cent, thanks largely to software volume licences) and net income up $7.785 billion (up 73 per cent but there was no space in the report to flag this obscene increase). With $17.236 billion cash and short-term investments (Microsoft prefers to call this its investment portfolio) at 30 June, some will be suggesting that this represents the fruits of monopoly profits. Gates' message was drafted for him of course, but it does contain the comment that Microsoft is developing voice control, and that this would be a "breakthrough". Well, for Microsoft it would be, but everyone there are now quite a few companies with it, so Microsoft is far behind, it seems. Wait for us: we're the leader! Then there's the continuing effort to beat Notes. Microsoft says that 50 per cent of work is now done in teams, compared with 20 per cent a decade ago, so it added what it calls "team productivity features" to the BackOffice family. Ever since somebody set up a digital dashboard on a large quartered screen in Gates' office, this modest development has been toted by Microsoft as though it will be a killer app. It won't be, of course, but no end of developments are coming, like high-end scalability and load balancing - still, millions of people have to reboot their PCs several times a day. TVs and toasters don't need rebooting. (CE-based car stereos do though - Ed) Microsoft is of course providing money to help others to develop and deploy broadband networks, but its strange that with all that money being spent on R&D, Microsoft has not been able itself to innovate and improve bandwidth. In fact, its software has resulted in much of the Internet congestion. Regulatory pressures "are unlikely to ease," Bill's ghost says, but the really bad news was that "some slowdown" in global PC sales is likely next year. In a long section dealing with "issues and uncertainties", litigation gets the briefest of mentions: "Litigation regarding intellectual property rights, patents and copyrights occurs in the PC industry. In addition, there are government regulation and investigation risks along with other general corporate legal risks." A "contingencies" section (evidently not appropriate for the "issues and uncertainties" section) mentions the Sun case, DoJ, and Caldera cases, with a few words on the SEC investigation. Is it quiet confidence or just bravado that tempted Microsoft to claim that "Management currently believes that resolving these matters will not have a material adverse impact on the Company's financial position or its results of operations." Interestingly, that's not the same as saying it expects to win. Microsoft apparently lumps OEM income in with US revenue, as a consequence of which US revenue is $13.7 billion and non-US revenue $6 billion. The "consumer, commerce and other" segment now being run by Belluzzo only marginally increased its revenue (by $19 million to $1,784 million), but the operating income loss declined a further $22 million to $1,072 million. That's a lot of loss. At the end, Deloitte & Touche attached their certificate on 19 July, less than three weeks after the end of Microsoft's financial year. This does not seem to be a very long time if the accounts are truly in the mess that Dean Schmalensee described. Could the auditors have been a little hasty, we wonder, in view of that SEC investigation? ®

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