Microsoft Dynamics products provide business solutions for financial management, customer relationship management, supply chain management, and analytics applications for small and mid-size businesses, large organizations, and divisions of global enterprises. We evaluate our results based upon the nature of the end user in two primary parts – business revenue which includes Microsoft Office system revenue generated through volume licensing agreements and Microsoft Dynamics revenue, and consumer revenue which includes revenue from retail packaged product sales, OEM revenue, and sales of pre-installed versions of Office in Japan.

 

Fiscal year 2007 compared to fiscal year 2006 

 

MBD revenue increased primarily reflecting licensing of the 2007 Microsoft Office system. Revenue from consumer sales increased $371 million or 11% while revenue from business sales increased $1.54 billion or 14%. The increase in business revenue includes a 21% increase in Microsoft Dynamics customer billings. Foreign currency exchange rates accounted for a $248 million or a two percentage point increase in revenue.

MBD operating income increased reflecting the increased revenue, partially offset by increased sales and marketing expenses and cost of revenue primarily associated with the 2007 Microsoft Office system. The increase in sales and marketing expenses reflects increased headcount-related expenses, increased sales support costs from our Enterprise Software Advisor channel partners, and increased launch-related marketing expenses. Headcount-related costs increased 10%, driven by a 6% increase in headcount and an increase in salaries and benefits for existing headcount, partially offset by decreased stock-based compensation expense. 

 

Fiscal year 2006 compared to fiscal year 2005 

 

MBD revenue increased reflecting an increase in business sales of $1.01 billion or 10%, partially offset by a decrease in consumer sales of $44 million or 1%. The increase in business sales reflects a 16% increase in Microsoft Dynamics customer billings. 

MBD operating income increased reflecting the increased revenue partially offset by increased sales and marketing expenses related to supporting field sales efforts and increased research and development expenses. Headcount-related costs increased 8%, driven by a 14% increase in headcount and an increase in salaries and benefits for existing headcount, partially offset by decreased stock-based compensation expense. 

 

Entertainment and Devices Division 

 

 

The Entertainment and Devices Division (“EDD”) products include the Xbox video game system; PC games; consumer software and hardware products; the Zune digital music and entertainment device; Mediaroom, our Internet protocol television software; and Mobile and Embedded devices (Windows Mobile software platform, Windows Embedded device operating system and Windows Automotive). The success of video game consoles is determined by console innovation and quality, the portfolio of video game content for the console, online offerings, and the market share of the console. We believe that the functionality of the Xbox 360 console, games portfolio, and online offerings are