Desktop Central to Microsoft Profits

In a recent filing with the U.S. Securities and Exchange Commission (SEC), Microsoft revealed new details about its business, including the fact that its desktop Windows business has operating margins of more than 80%, and that four of its seven business segments—Home & Entertainment, MSN, Business Solutions, and CE/Mobility—lose money. This information underscores the importance of Windows to the entire company and reveals how much it is willing to lose to maintain a presence in other markets. It could also affect future planning as investors, employees, and customers pressure Microsoft to spend less on unprofitable businesses.

Windows Desktop Drives Profits

Microsoft’s Nov. 14 quarterly earnings filing (10-Q) covers the first quarter of Microsoft’s fiscal year 2003, which ended Sept. 30, 2002. In this filing, Microsoft has for the first time broken out quarterly revenue and operating profit or loss for seven business lines as if each were an independent business, taking into account not only the cost of goods, but also other costs, such as research and development (mainly software development), sales and marketing, and depreciation of certain assets. Revenue components and costs that could not be attributed to any single business line, such as companywide administrative and marketing expenses, were accounted for separately. (For details, see the chart “Finances by Business Segment“.)