Microsoft is helping everyone around the world achieve their business goals through our platforms and technologies. It can increase the viability of a small business, increase the competitiveness of a large business, and drive the efficiency of public sector facilities. Our platform also lays a foothold for startups to grow and contributes to education and health screening businesses.
The company generates revenue by providing cloud-based services and software products to individuals and businesses. The largest portion of our operating expenses is employee welfare. With the COVID-19 outbreak, we are taking steps to keep our employees safe and supporting an optimal working environment even during quarantine.
Its cloud business is dynamic and very competitive. Technology evolves at a rapid pace, and business models change accordingly. Each business change is made up of new products, technologies and ideas. The company is aware of changes in customer and user demand, industry trends, and many competing factors, and are developing cloud services accordingly. Accordingly, most of its investments are being spent on building cloud infrastructure and equipment, which can increase operating costs and reduce operating margins.
Its business is largely divided into three segments. Productivity and Business Processes, Intelligent Cloud, More Personal Computing.
1. Productivity and Business Processes
This segment consists of products and services related to productivity, communication and information provision through a wide variety of equipment and platforms. Products and services offered include Office Comemercial, Office Consumer, linkedin, and Dynamics.
2. Intelligent Cloud
This segment consists of our server products and cloud services to improve the productivity of modern businesses and startups. Server products and cloud services include Azure, SQL Server, Windows Server, Visual Studio, System Center, CALs, and Github. Startup support services include Premier Support Services and Microsoft Consulting Services.
3. More Persoanl Computing
This division provides products and services that make computers easier for individuals to use with our technology. Products and services include Windows and Windows cloud services. We also offer computer equipment, including Surface and PC accessories. In addition, we are providing Xvox hardware, game content, and streaming services as gaming equipment and services, as well as a search engine.
Year-over-year sales increased by 17% due to sales growth in all sectors. Productivity and Business Processes sales increased with the growth of Office Commercial and linkedin. Intelligent Cloud sales increased due to the growth of server products and cloud services. More Personal Computing revenue grew with the growth of Windows and Surface. Operating income increased by 23% year-over-year, and net income increased accordingly.
Productivity and Business Processes
The growth of Office 365 Commercial increased sales of Office Commercial products and cloud services by 12%. Microsoft 365 subscription fees and contracts increased in Japan, increasing sales of Office Consumer products and cloud services by 11%. Linkedin sales grew by about 20% and Dynamics products and cloud services sales increased by 14%. As a result, segment sales increased 13% year over year and operating profit increased 15% year over year.
Intelligent Cloud
With Azure growing 56% year over year, sales of Server products and cloud services increased by 27%. The growth of Premier Support Services increased Enterprise Services revenue by 5%. As a result, segment sales increased 24% year over year and operating profit increased 32% year over year.
More Personal Computing
Windows Commercial and Windows OEM growth increased Windows sales by 9%. Sales of Windows Commercial products and cloud services increased by 18% due to the growth of Microsoft 365. Windows OEM sales increased 9% as the PC market grew. Surface division and Gaming division increased by 8% and 2%, respectively. Search engine ad sales increased by 1%.
The following is the current status of our R&D investment.
The company is investing $19,269 million in R&D, representing 13% of sales in 2020. It has increased by 14% compared to last year.
This is our cash flow statement. As cash flows from operating activities have steadily increased for three years, free cash flows are also on the rise. Looking at the financial activity cash flow, you can see that treasury stock purchases and dividends continue to grow. You can see that we are realizing shareholder value. Looking at the cash flow of investment activities, the amount of assets and equipment purchases are steadily increasing, and most of them are used to build cloud business infrastructure.
The figure on the left is Microsoft, and the figure on the right is the industry average. Its ROE is around 36%, 16% P above the industry average. It appears to be due to the monopoly of the software and cloud industries. With a 5-year average of 31.3%, the cloud industry's fast growth rate shows high earnings-per-share growth. Quick Ratio is 2.49, which has excellent short-term debt repayment ability, and LT Debt to Equity is 57.93%, which is excellent in debt payment ability. It shows high financial strength. Asset turnover is 0.49. The dividend rate itself is not high at 1.11%, but the annual average dividend growth rate is steadily increasing at 8-10%.
Microsoft is a company with a unique position in the software industry, worthy of its name. There was no significant growth trend in the 2000s and 2010s, but by mid-2010, the rapid growth of the cloud industry accelerated our profit growth rate. Currently, it has a high market share in the cloud industry along with Amazon, and it is diversifying its business by launching a search engine called Edge and entering the Gaming business through Xbox.
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