2003



Shareholder Letter



Dear Shareholders, Customers, Partners, and Employees:

Fiscal 2003 was a year of important and exciting innovations, reflected in many new Microsoft products that advance our mission of enabling people and businesses throughout the world to realize their full potential.



Despite challenging economic conditions, revenue increased by $3.82 billion to $32.19 billion, and operating income grew by $1.31 billion to $13.22 billion. Revenue in each of Microsoft’s seven business segments grew by 11 percent or more.



During the year, the company’s senior leadership refined our strategy for achieving continued growth and success in the years ahead. To help you understand our approach to the possibilities before us, we would like to outline our business plan.



A challenging environment

Because Microsoft is making substantial investments today to enhance the power and value of an integrated computing platform, we are optimistic about the company’s long-term growth opportunities. Like any business, however, we face challenges in the near- and mid-term. We are addressing them head-on. 



One of the most important challenges lies in serving business customers. Having recently invested in Y2K upgrades and the Internet, businesses want their future technology investments to do more and cost less. Many enterprises are migrating their server networks from proprietary hardware running the UNIX operating system to less expensive alternatives built on Intel microprocessors. Microsoft can benefit from this shift because we provide customers with comprehensive, end-to-end technology solutions and unmatched value. Last year, our server and tools revenue increased 16 percent.



Some organizations migrating from UNIX are considering noncommercial software such as Linux and OpenOffice. While the initial cost of acquiring a stripped-down, do-it-yourself operating system may seem attractive, a growing body of independent research shows that our integrated platform provides not only greater functionality but also lower total cost of ownership in most common business functions.



Today the Windows platform offers unmatched simplicity, security, choice of applications, and overall business value. Tomorrow the Windows advantage over the competition will continue to widen as we continue to invest in innovation.



Still, Linux and other noncommercial software present a challenge, and we are not complacent. We are working hard 

to ensure that our products and services continue to improve and meet customer demands for value. We are committed to exceed our customers’ expectations for product reliability, security, and engineering excellence.



In order to take computing to the next level for customers, our business plan identifies six things we will do: 



•	Provide breakthrough, high-quality integrated innovation;

•	Deliver best-in-class responsiveness to customers;

•	Make our platform the best for developers;

•	Deliver simple, high-value experiences and services;

•	Ignite customer enthusiasm and tell the Microsoft story; and

•	Build our talent pool and increase productivity.



Integrated innovation

We believe that customers