software, as well as technologies to power the specific needs of small-business operations and e-commerce, Microsoft can enable small businesses to better use technology to their business advantage.  Over the next four years, technology spending by small businesses is forecast to increase by more than $50 billion.  With more than 1 million registered users, bCentral™, Microsoft’s Web-based small-business portal is already #1 in terms of reach.  Over the next year, bCentral will deliver a number of new Web services, as well as launch in five additional countries.  We will also be launching a new version of the leading small-business server suite, Small Business Server 2000.



Building the Future Together

In partnership with thousands of other technology companies that share our vision of high-performance, affordable computing, Microsoft has helped build a high-tech industry that is thriving on innovation and competition, and driving growth in the U.S. economy.  That is one of the reasons why we believe the appellate courts will rule in Microsoft’s favor in the antitrust lawsuit and uphold the well-established legal precedent that U.S. antitrust law should encourage, not discourage, firms to improve their products rapidly to meet customer needs.  We also believe the appellate courts will recognize that the district court’s order to break up Microsoft and impose crippling regulations reached far beyond the facts of the case, and would lead to less innovation, fewer choices and higher prices.

Finally, on the occasion of Microsoft’s 25th anniversary, we would like to take a moment to acknowledge the passionate, smart, dedicated employees who have helped make Microsoft the global leader in software, as well as our millions of shareholders, thousands of business partners, and hundreds of millions of customers around the world who have enabled the company to succeed over the years.  The future is filled with amazing possibilities and opportunities, and our passion for improving people’s lives through great software will allow us to contribute even more than in our first 25 years.





Management’s Discussion and Analysis

Results of Operations for 1998, 1999, and 2000



Microsoft develops, manufactures, licenses, and supports a wide range of software products for a multitude of computing devices.  Microsoft software includes scalable operating systems for servers, personal computers (PCs), and intelligent devices; server applications for client/server environments; knowledge worker productivity applications; and software development tools.  The Company’s online efforts include the MSN network of Internet products and services and alliances with companies involved with broadband access and various forms of digital interactivity.  Microsoft also licenses consumer software programs; sells hardware devices; provides consulting services; trains and certifies system integrators and developers; and researches and develops advanced technologies for future software products.

This Management’s Discussion and Analysis contains statements that are forward-looking.  These statements are based on current expectations that are subject to risks and