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Meaningful innovation: Human ingenuity, powered by AI

This week, I’ve had a great time in the 110-degree heat in Las Vegas at our Inspire and Ready conferences (well, maybe not enjoying the heat so much). I’ve had the opportunity to share the role of innovation and the power of artificial intelligence with partners and employees from every corner of the globe. This is a really exciting time to be at the forefront of the AI revolution, and it’s been great to be involved in discussions about the profound effect AI is having on how we live and work.

Making the most of AI in business

Making AI real, and delivering tangible impact from it, is something we must work together to achieve. Our partners play a critical role in making the most of the opportunities that are only possible through AI. All week, I’ve heard stories of our partners embracing the power of AI to differentiate their services and extend their capabilities to create new business opportunities for themselves and great business outcomes for their customers.

For example, there’s Xanterra – a customer-experience-driven business that hosts 26 million visitors all over the world. Their goal is to provide world-class service and personalization for their well-traveled guests, many of whom are repeat customers at their different global properties. Xanterra’s challenge was that their properties weren’t connected, creating a gap between the high-touch experiences the company delivers and the need to personalize those experiences for guests. Our partner, RedPoint Global, used Microsoft AI to help Xanterra create a detailed profile of each and every customer by connecting data from more than 100 different sources. Now, they use this information to anticipate their guests’ needs more effectively and generate relevant, customized offers to each. Because of this, the Xanterra team increased their revenue with each touchpoint, elevated the guest experience and is sending customer communications more efficiently.

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So how can we help unlock more opportunities for people to use AI? Our new Microsoft Azure AI Accelerate Program is helping our partners take advantage of the opportunities AI can bring to their business. It focuses on helping grow ecosystems and bridge adoption barriers to create more value for everyone. We’re also making it easier for partners to access AI Business School by connecting each learning path into the Partner Training Center. In addition, we are publishing the AI Business School in a Box in the Partner Marketing Center, a set of unique assets to enable partners to lead AI engagements with confidence.

Making the most of AI in society: AI for Good

While the opportunity that AI presents for our customers and partners is huge, the potential for AI to positively benefit society through ingenuity, vision and scale is even bigger. Microsoft’s AI for Good initiative already has more than 300 grantees across 63 countries. All of them are using AI to tackle some of our greatest challenges that go beyond business — including climate change, humanitarian crises and enabling greater accessibility for the more than 1 billion people across the world living with a disability.

One of my favorite stories, and one that I was honored to share at Microsoft Inspire this week, is the incredible work of Wild Me, one of the program’s grantees. They’re using the power of Microsoft AI to track individual animals to monitor the health of entire species in support of conservation efforts. As a result, they’ve been able to identify 10 times more whale sharks than ever before in human history. It’s truly awe-inspiring and vital work.

Wild Me’s story is one of many showing how AI is positively impacting society and transforming the world we live in. Building upon our commitment to use tech to make a positive impact on society, we just announced our newest AI for Good program dedicated to the preservation and enrichment of cultural heritage. Through our AI for Cultural Heritage program, we’re partnering with the people preserving places of historical and cultural significance for future generations – such as the work by nonprofit organization Iconem, which is using AI to digitally re-create at-risk locations in areas of conflict. The program will also help communities preserve languages that are at risk of being lost, such as the Yucatec Maya and Querétaro Otomi in Mexico. Because of this, more people across the world will be able to enjoy historical artifacts – as exemplified by our recent partnership with the Metropolitan Museum of Art, making its collection of 1.5 million works of art that spans 5,000 years more accessible to everyone.

The innovations from the grantees we’re working with through our AI for Good initiative reflect our belief in the use of AI to inspire and nurture breakthrough ideas that have meaningful impact and can solve some of the world’s greatest problems.

I’m humbled by the work of our partners and grantees, and being at Inspire reminds me just how fortunate I am to help and work alongside them as they create what’s next and do really powerful things with AI. Technology is just one part of the story, and empowering people to shape and transform the world and do good are at the center of it. By encouraging our partners and users to create their own meaningful innovations, we’re working together to embrace change and find solutions to all sorts of challenges – whether they’re business or societal ones.

Related links:

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‘Gears 5’ Versus Multiplayer Tech Test goes live

It’s finally here – The Gears 5 Versus Tech Test goes live today to give players their first taste of Versus multiplayer action. Starting at 10 a.m. PDT today, COG hopefuls can enlist in the Boot Camp training mode and then jump right into Arcade, the new game type designed for over-the-top fun where characters become heroes with their own unique abilities, loadouts and playstyles.

Gears veterans will want to check out fan-favorite King of the Hill, the updated competitive game type Escalation and a mini-Tour of Duty, a series of challenges that grant sweet Tech Test exclusive rewards that will carry over into Gears 5.  No matter your level of Gears familiarity, Gears 5 offers a game type for you.

Access to the Tech Test is included with your Xbox Game Pass membership or as part of your Gears 5 pre-order (whether as a separate 5×5 code from a participating retailer or bundled in your digital pre-order). Eligible players can download the game app now and matchmaking will begin at 10 a.m. PDT today. Matchmaking will run through July 22 at 10 a.m. PDT and will be active again from July 26 at 10 a.m. PDT until July 29 at 10 a.m. PDT. To download, simply search for “Gears 5” in the Xbox or Windows Store to pull up the Tech Test on your Xbox One or Windows 10 PC. If you’re an Xbox Game Pass member, you will see the Tech Test available to download in “Recently added” section of the Game Pass library. Online multiplayer will require Xbox Live Gold on console or an Xbox Game Pass Ultimate membership. For players on Windows 10 PC, we have the below chart that outlines minimum and recommended specs for the Tech Test:

Boot Camp

Within the Tech Test, players will find Boot Camp, the perfect way to practice your skills and learn new mechanics before joining the fight in Gears 5. Boot Camp takes you through all the basics, from cover movement to executions, in easy-to-repeat sections perfect for new players and returning veterans alike. Whether you’re learning the ropes or just refreshing your memory, Boot Camp offers an intuitive training mode to ensure you’re ready for primetime in the Tech Test.

Arcade

Arcade is a brand-new type of Versus experience that encourages approachable gameplay for all types of players. Arcade is the ultimate jump-in/jump-out mode featuring classic characters such as Kait and Marcus each with their own distinct abilities and weapon upgrades. For more details on the Arcade experience, check out the above trailer or jump into the action yourself this weekend.

King of the Hill

The classic King of the Hill action you know and love is back in full force in Gears 5. Battle for supremacy and prove your dominance with a team or solo as you compete to capture and hold territories.

Escalation

If you’re looking for the ultimate competitive experience from Gears 5, Escalation offers thrilling, objective-based play requiring a combination of individual skill, teamwork and strategy. With the introduction of limited respawns, an overhauled weapon system and updated player spawning, Escalation in Gears 5 is more tactically rich and competitive than ever before. So grab some friends, experiment with new strategies and watch each other’s backs this weekend.

Thanks for your support and we look forward to seeing you online! Be sure to visit www.gears5.com and follow @GearsofWar on Facebook and Twitter to keep up-to-date with the latest on Gears 5 ahead of launch on September 10.

Gears 5 will release on September 10 for Xbox One, Windows 10 PC and Xbox Game Pass. Early access starts on September 6 for Xbox Game Pass Ultimate members and Gears 5 Ultimate Edition purchasers. Pre-order details can be found on the Microsoft Store.

Xbox Game Pass provides a curated library of over 100 great games for one low-monthly price, with new games added all the time including the latest titles from Xbox Game Studios on the day they launch. The service is available across console and PC, with Ultimate members receiving access to all the benefits of Xbox Live Gold, as well as access to titles across both platforms.

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How AI is changing the world of manufacturing

Henry Ford’s assembly line revolutionized manufacturing in the 20th century. The transformation driven by AI in the 21st century will be just as dramatic. 

“The Future Computed: AI and Manufacturing” is the second book in Microsoft’s The Future Computed series, looking at the impact of AI on society. 

Author Greg Shaw examines the way in which leading manufacturing companies are using AI to build the factories and supply chains of the future. He explores the exciting opportunities around this new technology and also looks at the way the manufacturing industry is again at the forefront of grappling with the challenges of adopting a new technology. In particular, The Future Computed: AI and Manufacturing looks at the importance of creating a framework for the ethical and responsible use of AI and ensuring that workers can be trained to take on new tasks.  

[Subscribe to Microsoft on the Issues for more on the topics that matter most.] 

In this video, Shaw explains the themes underlying his research, and hears directly from Çağlayan Arkan, general manager of Microsoft Global Manufacturing, and some of the manufacturing customers at the cutting edge of industrial AI. 

For more on AI innovations at Microsoft follow @MSFTIssues on Twitter.

Microsoft Cloud powers record fourth quarter results

Microsoft Cloud Powers Record Fourth Quarter Results

REDMOND, Wash. — July 18, 2019 — Microsoft Corp. today announced the following results for the quarter ended June 30, 2019, as compared to the corresponding period of last fiscal year:

·        Revenue was $33.7 billion and increased 12%

·        Operating income was $12.4 billion and increased 20%

·        Net income was $13.2 billion GAAP and $10.6 billion non-GAAP, and increased 49% and 21%, respectively

·        Diluted earnings per share was $1.71 GAAP and $1.37 non-GAAP, and increased 50% and 21%, respectively

·        GAAP results include a $2.6 billion net income tax benefit explained in the Non-GAAP Definition section below

“It was a record fiscal year for Microsoft, a result of our deep partnerships with leading companies in every industry,” said Satya Nadella, chief executive officer of Microsoft. “Every day we work alongside our customers to help them build their own digital capability – innovating with them, creating new businesses with them, and earning their trust. This commitment to our customers’ success is resulting in larger, multi-year commercial cloud agreements and growing momentum across every layer of our technology stack.”

The following table reconciles our financial results reported in accordance with generally accepted accounting principles (GAAP) to non-GAAP financial results. Additional information regarding our non-GAAP definition is provided below. All growth comparisons relate to the corresponding period in the last fiscal year.

 

Three Months Ended June 30,

 

 ($ in millions, except per share amounts)

Revenue

Operating Income

Net Income

Diluted Earnings per Share

2018 As Reported (GAAP)

$30,085

$10,379

$8,873_

$1.14_

  Net Impact of the Tax Cuts and Jobs Act (TCJA)

(104)

(0.01)

2018 As Adjusted (non-GAAP)

$30,085

$10,379

$8,769_

$1.13_

2019 As Reported (GAAP)

$33,717

$12,405

$13,187_

$1.71_

  Net Tax Impact of Transfer of Intangible Properties

(2,567)

(0.34)

2019 As Adjusted (non-GAAP)

$33,717

$12,405

$10,620_

$1.37_

Percentage Change Y/Y (GAAP)

12%

20%

49%

50%

Percentage Change Y/Y (non-GAAP)

12%

20%

21%

21%

Percentage Change Y/Y (non-GAAP) Constant Currency

14%

24%

24%

24%

The current quarter effective tax rate was (5)% and 16% on a GAAP and non-GAAP basis, respectively. GAAP results include a net income tax benefit of $2.6 billion for the fourth quarter of fiscal year 2019 and a net income tax benefit of $104 million for the fourth quarter of fiscal year 2018. These net tax benefits are excluded from our non-GAAP results and explained in the Non-GAAP Definition section below.

Microsoft returned $7.7 billion to shareholders in the form of share repurchases and dividends in the fourth quarter of fiscal year 2019.

“Q4 commercial cloud revenue increased 39% year-over-year to $11.0 billion, driving our strongest commercial quarter ever,” said Amy Hood, executive vice president and chief financial officer of Microsoft.

Revenue in Productivity and Business Processes was $11.0 billion and increased 14% (up 17% in constant currency), with the following business highlights:

·        Office Commercial products and cloud services revenue increased 14% (up 16% in constant currency) driven by Office 365 Commercial revenue growth of 31% (up 34% in constant currency)

·        Office Consumer products and cloud services revenue increased 6% (up 8% in constant currency) and Office 365 Consumer subscribers increased to 34.8 million

·        LinkedIn revenue increased 25% (up 28% in constant currency) with record levels of engagement highlighted by LinkedIn sessions growth of 22%

·        Dynamics products and cloud services revenue increased 12% (up 15% in constant currency) driven by Dynamics 365 revenue growth of 45% (up 48% in constant currency)

Revenue in Intelligent Cloud was $11.4 billion and increased 19% (up 21% in constant currency), with the following business highlights:

·        Server products and cloud services revenue increased 22% (up 24% in constant currency) driven by Azure revenue growth of 64% (up 68% in constant currency)

·        Enterprise Services revenue increased 4% (up 6% in constant currency)

Revenue in More Personal Computing was $11.3 billion and increased 4% (up 6% in constant currency), with the following business highlights:

·        Windows OEM revenue increased 9% (up 9% in constant currency)

·        Windows Commercial products and cloud services revenue increased 13% (up 16% in constant currency)

·        Surface revenue increased 14% (up 17% in constant currency)

·        Search advertising revenue excluding traffic acquisition costs increased 9% (up 10% in constant currency)

·        Gaming revenue declined 10% (down 8% in constant currency) with Xbox software and services revenue down 3% (down 1% in constant currency)

Fiscal Year 2019 Results

Microsoft Corp. today announced the following results for the fiscal year ended June 30, 2019, as compared to the corresponding period of last fiscal year:

·        Revenue was $125.8 billion and increased 14%

·        Operating income was $43.0 billion and increased 23%

·        Net income was $39.2 billion GAAP and $36.8 billion non-GAAP, and increased 137% and 22%, respectively

·        Diluted earnings per share was $5.06 GAAP and $4.75 non-GAAP, and increased 138% and 22%, respectively

·        GAAP results include a $2.6 billion net income tax benefit explained in the Non-GAAP Definition section below

The following table reconciles our financial results reported in accordance with GAAP to non-GAAP financial results. Additional information regarding our non-GAAP definition is provided below. All growth comparisons relate to the corresponding period in the last fiscal year.

 

 

Twelve Months Ended June 30,

 ($ in millions, except per share amounts)

Revenue

Operating Income

Net Income

Diluted Earnings per Share

 

2018 As Reported (GAAP)

$110,360

$35,058

$16,571_

$2.13_

 

  Net Impact of the TCJA

13,696_

1.75_

 

2018 As Adjusted (non-GAAP)

$110,360

$35,058

$30,267_

$3.88_

 

2019 As Reported (GAAP)

$125,843

$42,959

$39,240_

$5.06_

 

  Net Tax Impact of Transfer of Intangible Properties

(2,567)

(0.33)

 

  Net Impact of the TCJA

157_

0.02_

 

2019 As Adjusted (non-GAAP)

$125,843

$42,959

$36,830_

$4.75_

 

Percentage Change Y/Y (GAAP)

14%

23%

137%

138%

 

Percentage Change Y/Y (non-GAAP)

14%

23%

22%

22%

 

Percentage Change Y/Y (non-GAAP) Constant Currency

15%

24%

22%

23%

 

The current year effective tax rate was 10% and 16% on a GAAP and non-GAAP basis, respectively. GAAP results include a net income tax benefit of $2.6 billion and a net income tax charge of $157 million for the twelve months ended June 30, 2019. GAAP results include a net income tax charge of $13.7 billion for the twelve months ended June 30, 2018. These net tax impacts are excluded from our non-GAAP results and explained in the Non-GAAP Definition section below.

Business Outlook

Microsoft will provide forward-looking guidance in connection with this quarterly earnings announcement on its earnings conference call and webcast.

Quarterly Highlights, Product Releases, and Enhancements 

Every quarter Microsoft delivers hundreds of products, either as new releases, services, or enhancements to current products and services. These releases are a result of significant research and development investments, made over multiple years, designed to help customers be more productive and secure and to deliver differentiated value across the cloud and the edge.

Here are the major product releases and other highlights for the quarter, organized by product categories, to help illustrate how we are accelerating innovation across our businesses while expanding our market opportunities.

Webcast Details

Satya Nadella, chief executive officer, Amy Hood, executive vice president and chief financial officer, Frank Brod, chief accounting officer, Keith Dolliver, deputy general counsel, and Michael Spencer, general manager of investor relations, will host a conference call and webcast at 2:30 p.m. Pacific time (5:30 p.m. Eastern time) today to discuss details of the company’s performance for the quarter and certain forward-looking information. The session may be accessed at http://www.microsoft.com/en-us/investor. The webcast will be available for replay through the close of business on July 18, 2020.

Non-GAAP Definition

Transfer of Intangible Properties. In the fourth quarter of fiscal year 2019, in response to the TCJA and recently issued regulations, we transferred certain intangible properties held by our foreign subsidiaries to the United States and Ireland. The transfers of intangible properties resulted in a net $2.6 billion tax benefit recorded in the fourth quarter of fiscal year 2019, as the value of future tax deductions exceeded the current tax liability from foreign jurisdictions and United States Global Intangible Low-Taxed Income (GILTI) tax.

The TCJA Impact. We recorded a net charge of $157 million during the twelve months ended June 30, 2019 related to the TCJA. We recorded a net benefit of $104 million during the three months ended June 30, 2018 and a net charge of $13.7 billion during the twelve months ended June 30, 2018 related to the TCJA.

We have provided non-GAAP financial measures related to the transfer of intangible properties and the TCJA to aid investors in better understanding our performance. We believe these non-GAAP measures assist investors by providing additional insight into our operational performance and help clarify trends affecting our business. For comparability of reporting, management considers non-GAAP measures in conjunction with GAAP financial results in evaluating business performance. The non-GAAP financial measures presented in this release should not be considered as a substitute for, or superior to, the measures of financial performance prepared in accordance with GAAP.

Constant Currency

Microsoft presents constant currency information to provide a framework for assessing how our underlying businesses performed excluding the effect of foreign currency rate fluctuations. To present this information, current and comparative prior period results for entities reporting in currencies other than United States dollars are converted into United States dollars using the average exchange rates from the comparative period rather than the actual exchange rates in effect during the respective periods. All growth comparisons relate to the corresponding period in the last fiscal year. Microsoft has provided this non-GAAP financial information to aid investors in better understanding our performance. The non-GAAP financial measures presented in this release should not be considered as a substitute for, or superior to, the measures of financial performance prepared in accordance with GAAP.


Financial Performance Constant Currency Reconciliation

 

Three Months Ended June 30,

 ($ in millions, except per share amounts)

Revenue

Operating Income

Net Income

Diluted Earnings per Share

2018 As Reported (GAAP)

$30,085_

$10,379_

$8,873_

$1.14_

2018 As Adjusted (non-GAAP)

$30,085_

$10,379_

$8,769_

$1.13_

2019 As Reported

$33,717_

$12,405_

$13,187_

$1.71_

2019 As Adjusted (non-GAAP)

$33,717_

$12,405_

$10,620_

$1.37_

Percentage Change Y/Y (GAAP)

12%_

20%_

49%_

50%_

Percentage Change Y/Y (non-GAAP)

12%_

20%_

21%_

21%_

Constant Currency Impact

$(639)

$(444)

$(250)

$(0.03)

Percentage Change Y/Y (non-GAAP) Constant Currency

14%_

24%_

24%_

24%_

 

 

 

 

 

Twelve Months Ended June 30,

 ($ in millions, except per share amounts)

Revenue

Operating Income

Net Income

Diluted Earnings per Share

2018 As Reported (GAAP)

$110,360_

$35,058_

$16,571_

$2.13_

2018 As Adjusted (non-GAAP)

$110,360_

$35,058_

$30,267_

$3.88_

2019 As Reported

$125,843_

$42,959_

$39,240_

$5.06_

2019 As Adjusted (non-GAAP)

$125,843_

$42,959_

$36,830_

$4.75_

Percentage Change Y/Y (GAAP)

14%_

23%_

137%_

138%_

Percentage Change Y/Y (non-GAAP)

14%_

23%_

22%_

22%_

Constant Currency Impact

$(1,116)

$(505)

$(147)

$(0.02)

Percentage Change Y/Y (non-GAAP) Constant Currency

15%_

24%_

 22%_

23%_

 

Segment Revenue Constant Currency Reconciliation

 

Three Months Ended June 30,

 ($ in millions)

Productivity and Business Processes

Intelligent Cloud

More Personal Computing

2018 As Reported

$9,668_

$9,606_

$10,811_

2019 As Reported

$11,047_

$11,391_

$11,279_

Percentage Change Y/Y

14%_

19%_

4%_

Constant Currency Impact

$(249)

$(229)

$(161)

Percentage Change Y/Y Constant Currency

17%_

21%_

6%_

 


 

Selected Product and Service Revenue Constant Currency Reconciliation           

 

Three Months Ended June 30, 2019

Percentage Change Y/Y (GAAP)

Constant Currency Impact

Percentage Change Y/Y Constant Currency

Office Commercial products and cloud services

14%

2%

16%

Office 365 Commercial

31%

3%

34%

Office Consumer products and cloud services

6%

2%

8%

LinkedIn

25%

3%

28%

Dynamics products and cloud services

12%

3%

15%

Dynamics 365

45%

3%

48%

Server products and cloud services

22%

2%

24%

Azure

64%

4%

68%

Enterprise Services

4%

2%

6%

Windows OEM

9%

0%

9%

Windows Commercial products and cloud services

13%

3%

16%

Search advertising excluding traffic acquisition costs

9%

1%

10%

Surface

14%

3%

17%

Gaming

(10)%

2%

(8)%

Xbox software and services

(3)%

2%

(1)%

About Microsoft

Microsoft (Nasdaq “MSFT” @microsoft) enables digital transformation for the era of an intelligent cloud and an intelligent edge. Its mission is to empower every person and every organization on the planet to achieve more.

Forward-Looking Statements

Statements in this release that are “forward-looking statements” are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could differ materially because of factors such as:

·        intense competition in all of our markets that may lead to lower revenue or operating margins;

·        increasing focus on cloud-based services presenting execution and competitive risks;

·        significant investments in products and services that may not achieve expected returns;

·        acquisitions, joint ventures, and strategic alliances that may have an adverse effect on our business;

·        impairment of goodwill or amortizable intangible assets causing a significant charge to earnings;

·        cyberattacks and security vulnerabilities that could lead to reduced revenue, increased costs, liability claims, or harm to our reputation or competitive position;

·        disclosure and misuse of personal data that could cause liability and harm to our reputation;

·        the possibility that we may not be able to protect information stored in our products and services from use by others;

·        abuse of our advertising or social platforms that may harm our reputation or user engagement;

·        the development of the internet of things presenting security, privacy, and execution risks;

·        issues about the use of artificial intelligence in our offerings that may result in competitive harm, legal liability, or reputational harm; and

·        excessive outages, data losses, and disruptions of our online services if we fail to maintain an adequate operations infrastructure;

·        quality or supply problems;

·        the possibility that we may fail to protect our source code;

·        legal changes, our evolving business model, piracy, and other factors may decrease the value of our intellectual property;

·        claims that Microsoft has infringed the intellectual property rights of others;

·        claims against us that may result in adverse outcomes in legal disputes;

·        government litigation and regulatory activity relating to competition rules that may limit how we design and market our products;

·        potential liability under trade protection, anti-corruption, and other laws resulting from our global operations;

·        laws and regulations relating to the handling of personal data that may impede the adoption of our services or result in increased costs, legal claims, fines, or reputational damage;

·        additional tax liabilities;

·        damage to our reputation or our brands that may harm our business and operating results.

·        exposure to increased economic and operational uncertainties from operating a global business, including the effects of foreign currency exchange;

·        adverse economic or market conditions that may harm our business;

·        catastrophic events or geo-political conditions that may disrupt our business;

·        the dependence of our business on our ability to attract and retain talented employees; and

·        changes in our sales organization that may impact revenues.

For more information about risks and uncertainties associated with Microsoft’s business, please refer to the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” sections of Microsoft’s SEC filings, including, but not limited to, its annual report on Form 10-K and quarterly reports on Form 10-Q, copies of which may be obtained by contacting Microsoft’s Investor Relations department at (800) 285-7772 or at Microsoft’s Investor Relations website at http://www.microsoft.com/en-us/investor.

All information in this release is as of June 30, 2019. The company undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in the company’s expectations.

For more information, press only:

Microsoft Media Relations, WE Communications for Microsoft, (425) 638-7777, rrt@we-worldwide.com

For more information, financial analysts and investors only:

Michael Spencer, General Manager, Investor Relations, (425) 706-4400

Note to editors: For more information, news and perspectives from Microsoft, please visit the Microsoft News Center at http://www.microsoft.com/news. Web links, telephone numbers, and titles were correct at time of publication, but may since have changed. Shareholder and financial information, as well as today’s 2:30 p.m. Pacific time conference call with investors and analysts, is available at http://www.microsoft.com/en-us/investor.


 

MICROSOFT CORPORATION

INCOME STATEMENTS

(In millions, except per share amounts) (Unaudited)

Three Months Ended

 June 30,

Twelve Months Ended

 June 30,

 

2019

 

2018

 

2019

 

2018

Revenue:

Product

 $17,103

 $17,159

 $66,069

 $64,497

Service and other

16,614

 12,926

59,774

 45,863

Total revenue

 33,717

 30,085

 125,843

 110,360

Cost of revenue:

Product

 3,298

 3,517

 16,273

 15,420

Service and other

 7,114

 6,225

 26,637

 22,933

Total cost of revenue

10,412

 9,742

 42,910

 38,353

Gross margin

 23,305

 20,343

 82,933

 72,007

Research and development

 4,513

 3,933

 16,876

 14,726

Sales and marketing

4,962

 4,760

 18,213

 17,469

General and administrative

1,425

 1,271

 4,885

 4,754

Operating income

12,405

 10,379

 42,959

 35,058

Other income, net

191

 301

 729

 1,416

Income before income taxes

12,596

 10,680

 43,688

 36,474

Provision for (benefit from) income taxes

(591)

 1,807

 4,448

 19,903

Net income

 $13,187

 $8,873

 $39,240

 $16,571

Earnings per share:

Basic

 $1.72

 $1.15

 $5.11

 $2.15

Diluted

 $1.71

 $1.14

 $5.06

 $2.13

Weighted average shares outstanding:

Basic

7,655

7,683

7,673

7,700

Diluted

7,730

7,775

7,753

7,794


 

COMPREHENSIVE INCOME STATEMENTS

(In millions) (Unaudited)

Three Months Ended

 June 30,

Twelve Months Ended

 June 30,

 

2019

 

2018

 

2019

 

2018

Net income

$13,187

 $8,873

 $39,240

 $16,571

Other comprehensive income (loss), net of tax:

Net change related to derivatives

(80)

145

(173)

39

Net change related to investments

1,071

(535)

2,405

(2,717)

Translation adjustments and other

(66)

(686)

(318)

(178)

Other comprehensive income (loss)

925

(1,076)

1,914

(2,856)

Comprehensive income

$14,112

 $7,797

 $41,154

 $13,715

 


 

BALANCE SHEETS

(In millions) (Unaudited)

 

June 30,

2019

 

June 30,

 2018

Assets

Current assets:

Cash and cash equivalents

 $11,356

 $11,946

Short-term investments

 122,463

 121,822

Total cash, cash equivalents, and short-term investments

 133,819

 133,768

Accounts receivable, net of allowance for doubtful accounts of $411 and $377

 29,524

 26,481

Inventories

 2,063

 2,662

Other

 10,146

 6,751

Total current assets

 175,552

 169,662

Property and equipment, net of accumulated depreciation of $35,330 and $29,223

 36,477

 29,460

Operating lease right-of-use assets

 7,379

 6,686

Equity and other investments

 2,649

 1,862

Goodwill

42,026

 35,683

Intangible assets, net

 7,750

 8,053

Other long-term assets

 14,723

 7,442

Total assets

 $286,556

 $258,848

Liabilities and stockholders’ equity

Current liabilities:

Accounts payable

 $9,382

 $8,617

Current portion of long-term debt

 5,516

 3,998

Accrued compensation

 6,830

 6,103

Short-term income taxes

 5,665

 2,121

Short-term unearned revenue

32,676

 28,905

Other

9,351

 8,744

Total current liabilities

69,420

 58,488

Long-term debt

 66,662

 72,242

Long-term income taxes

29,612

 30,265

Long-term unearned revenue

 4,530

 3,815

Deferred income taxes

 233

 541

Operating lease liabilities

 6,188

 5,568

Other long-term liabilities

7,581

 

 5,211

Total liabilities

184,226

 176,130

Commitments and contingencies

Stockholders’ equity:

 Common stock and paid-in capital — shares authorized 24,000; outstanding 7,643 and 7,677

78,520

 71,223

Retained earnings

 24,150

 13,682

Accumulated other comprehensive loss

 (340)

 (2,187)

Total stockholders’ equity

 102,330

 82,718

Total liabilities and stockholders’ equity

 $286,556

 $258,848

 


 

CASH FLOWS STATEMENTS

(In millions) (Unaudited)

Three Months Ended

 June 30,

Twelve Months Ended

 June 30,

 

2019

 

2018

 

2019

 

2018

Operations

Net income

$13,187

 $8,873

$39,240

 $16,571

Adjustments to reconcile net income to net cash from operations:

Depreciation, amortization, and other

2,924

2,516

11,682

10,261

Stock-based compensation expense

1,190

1,012

4,652

3,940

Net recognized gains on investments and derivatives

(322)

(567)

(792)

(2,212)

Deferred income taxes

(5,723)

(2,389)

(6,463)

(5,143)

Changes in operating assets and liabilities:

Accounts receivable

(10,070)

(9,188)

(2,812)

(3,862)

Inventories

(113)

(572)

597

(465)

Other current assets

(854)

(839)

(1,718)

(952)

Other long-term assets

(865)

550

(1,834)

(285)

Accounts payable

1,264

1,010

232

1,148

Unearned revenue

9,005

8,702

4,462

5,922

Income taxes

3,808

903

2,929

18,183

Other current liabilities

2,436

1,773

1,419

798

Other long-term liabilities

241

(366)

591

(20)

Net cash from operations

16,108

11,418

52,185

43,884

Financing

 

Repayments of short-term debt, maturities of 90 days or less, net

0

0

0

(7,324)

Proceeds from issuance of debt

0

0

0

7,183

Repayments of debt

(1,000)

(681)

(4,000)

(10,060)

Common stock issued

308

255

1,142

1,002

Common stock repurchased

(4,633)

(2,362)

(19,543)

(10,721)

Common stock cash dividends paid

(3,521)

(3,226)

(13,811)

(12,699)

Other, net

160

(25)

(675)

(971)

Net cash used in financing

(8,686)

(6,039)

(36,887)

(33,590)

Investing

 

Additions to property and equipment

(4,051)

(3,980)

(13,925)

(11,632)

Acquisition of companies, net of cash acquired, and purchases of intangible and other assets

(281)

(434)

(2,388)

(888)

Purchases of investments

(15,442)

(32,380)

(57,697)

(137,380)

Maturities of investments

5,154

7,108

20,043

26,360

Sales of investments

7,363

27,024

38,194

117,577

Securities lending payable

0

(8)

0

(98)

Net cash used in investing

(7,257)

(2,670)

(15,773)

(6,061)

Effect of foreign exchange rates on cash and cash equivalents

(21)

16

(115)

50

Net change in cash and cash equivalents

144

2,725

(590)

4,283

Cash and cash equivalents, beginning of period

11,212

9,221

11,946

7,663

Cash and cash equivalents, end of period

$11,356

 $11,946

$11,356

 $11,946


 

SEGMENT REVENUE AND OPERATING INCOME

(In millions)(Unaudited)

 

Three Months Ended

 June 30,

 

Twelve Months Ended

 June 30,

 

 

 

2019

 

2018

 

2019

 

2018

Revenue

 

 

 

 

 

 

 

Productivity and Business Processes

$11,047

 

 $9,668

 

 $41,160

 

 $35,865

Intelligent Cloud

11,391

 

9,606

 

38,985

 

32,219

More Personal Computing

11,279

 

10,811

 

45,698

 

42,276

Total

$33,717

 

$30,085

 

$125,843

 

$110,360

Operating Income

 

 

 

 

 

 

 

Productivity and Business Processes

 $4,344

 

 $3,466

 

 $16,219

 

 $12,924

Intelligent Cloud

4,502

 

3,901

 

13,920

 

11,524

More Personal Computing

3,559

 

3,012

 

12,820

 

10,610

Total

$12,405

 

$10,379

 

 $42,959

 

$35,058

 


 

MICROSOFT CORPORATION

FOURTH QUARTER FINANCIAL HIGHLIGHTS

All growth comparisons relate to the corresponding period in the last fiscal year. Please refer to the reconciliation of our GAAP and non-GAAP financial results in the table provided above for additional information.

SUMMARY

Revenue was $33.7 billion and increased 12%, driven by growth across each of our segments.

Gross margin was $23.3 billion and increased 15%, driven by growth across each of our segments. Gross margin percentage increased, driven by gross margin percentage improvement in More Personal Computing and Productivity and Business Processes, and favorable segment sales mix. Gross margin included a 6 percentage point improvement in commercial cloud, primarily from Azure.

Operating income was $12.4 billion and increased 20%, driven by growth across each of our segments.

Net income was $13.2 billion and increased 49%. Non-GAAP net income was $10.6 billion and increased 21%, excluding the net $2.6 billion income tax benefit in the current year and the net $104 million income tax benefit in the prior year. These net tax benefits are explained in the Income Taxes section below.

Diluted earnings per share was $1.71 and increased 50%. Non-GAAP diluted earnings per share was $1.37 and increased 21%, excluding $0.34 related to the net tax benefit in the current year and $0.01 related to the net tax benefit in the prior year.

Revenue, gross margin, and operating income included an unfavorable foreign currency impact of 2%, 2%, and 4%, respectively.

SEGMENT INFORMATION

Productivity and Business Processes

Revenue increased $1.4 billion or 14%.

·        Office Commercial revenue increased $891 million or 14%, driven by Office 365 Commercial, offset in part by lower revenue from products licensed on-premises, reflecting a continued shift to cloud offerings. Office 365 Commercial revenue grew 31%, due to growth in seats and higher average revenue per user.

·        Office Consumer revenue increased $57 million or 6%, driven by Office 365 Consumer, due to recurring subscription revenue and transactional strength in Japan.

·        LinkedIn revenue increased $371 million or 25%, driven by growth across each line of business.

·        Dynamics revenue increased 12%, driven by Dynamics 365 growth.


 

Operating income increased $878 million or 25%.

·        Gross margin increased $1.2 billion or 16%, driven by growth in Office Commercial and LinkedIn. Gross margin percentage increased, due to gross margin percentage improvement in LinkedIn and Office 365 Commercial, offset in part by an increased mix of cloud offerings.

·        Operating expenses increased $314 million or 8%, driven by investments in LinkedIn and cloud engineering.

Revenue, gross margin, and operating income included an unfavorable foreign currency impact of 3%, 4%, and 6%, respectively.

Intelligent Cloud

Revenue increased $1.8 billion or 19%.

·        Server products and cloud services revenue, including GitHub, increased $1.7 billion or 22%, driven by Azure. Azure revenue growth was 64%, due to higher infrastructure-as-a-service and platform-as-a-service consumption-based and per-user-based services. Server products revenue grew 5%, driven by demand ahead of end of support for SQL Server 2008 and Windows Server 2008, hybrid solutions, and GitHub.

·        Enterprise Services revenue increased $60 million or 4%, driven by growth in Premier Support Services.

Operating income increased $601 million or 15%.

·        Gross margin increased $1.3 billion or 19%, driven by growth in server products and cloud services revenue and cloud services scale and efficiencies. Gross margin percentage was relatively unchanged, with gross margin percentage improvement in Azure offset by an increased mix of cloud offerings.

·        Operating expenses increased $674 million or 23%, driven by investments in cloud and artificial intelligence (AI) engineering, GitHub, and revenue-driven operating expenses.

Revenue, gross margin, and operating income included an unfavorable foreign currency impact of 2%, 2%, and 4%, respectively.

More Personal Computing

Revenue increased $468 million or 4%.

·        Windows revenue increased $368 million or 7%, driven by growth in Windows OEM and Windows Commercial, offset in part by a decrease in patent licensing. Windows OEM revenue increased 9%. Windows OEM Pro revenue increased 18%, ahead of the commercial PC market, driven by healthy Windows 10 demand, strong momentum in advance of Windows 7 end of support, and increased inventory levels. Windows OEM non-Pro revenue declined 8%, below the consumer PC market, driven by continued pressure in the entry level category. Windows Commercial revenue increased 13%, driven by an increase of multi-year agreements that carry higher in-quarter revenue recognition.

·        Surface revenue increased $165 million or 14%, driven by strong growth in our commercial segment.

·        Search advertising revenue increased $184 million or 10%. Search advertising revenue, excluding traffic acquisition costs, increased 9%, driven by higher revenue per search.

·        Gaming revenue decreased $233 million or 10%. Xbox hardware revenue declined 48%, primarily due to a decrease in volume of consoles sold. Xbox software and services revenue declined 3% against a high prior year comparable from a third-party title, offset in part by subscriptions growth. 

Operating income increased $547 million or 18%.

·        Gross margin increased $495 million or 8%, driven by growth in Windows. Gross margin percentage increased, primarily due to a sales mix shift to higher gross margin Windows businesses.

·        Operating expenses decreased $52 million or 2%.

Revenue, gross margin, and operating income included an unfavorable foreign currency impact of 2%, 2%, and 4%, respectively.

EXPENSES

·        Cost of revenue increased $670 million or 7%, driven by growth in commercial cloud.

·        Research and development expenses increased $580 million or 15%, driven by investments in cloud and AI engineering, Gaming, GitHub, and LinkedIn.

·        Sales and marketing expenses increased $202 million or 4%, driven by investments in LinkedIn and GitHub. Expenses included a favorable foreign currency impact of 2%.

·        General and administrative expenses increased $154 million or 12%, driven by higher legal costs and GitHub.

OTHER INCOME, NET

Other income, net, decreased $110 million, driven by lower net recognized gains on investments, offset in part by lower net losses on foreign currency remeasurements and higher interest and dividends income.

INCOME TAXES

The current quarter effective tax rate was (5)% and 16% on a GAAP and non-GAAP basis, respectively, compared to 17% and 18% in the prior year. GAAP results include a net income tax benefit of $2.6 billion related to intangible property transfers for the fourth quarter of fiscal year 2019 and a net income tax benefit of $104 million related to the TCJA for the fourth quarter of fiscal year 2018. These net tax benefits are excluded from our non-GAAP results.

In the fourth quarter of fiscal year 2019, in response to the TCJA and recently issued regulations, we transferred certain intangible properties held by our foreign subsidiaries to the United States and Ireland. The transfers of intangible properties resulted in a net $2.6 billion tax benefit recorded in the fourth quarter of fiscal year 2019, as the value of future tax deductions exceeded the current tax liability from foreign jurisdictions and United States GILTI tax.

CONTRACTED NOT RECOGNIZED REVENUE

Contracted not recognized revenue, which includes unearned revenue and amounts that will be invoiced and recognized as revenue in future periods, was $91 billion as of June 30, 2019, an increase of 25% over the prior year. We expect to recognize approximately 50% of this revenue over the next 12 months and the remainder thereafter. Many customers are committing to our products and services for longer contract terms, which is increasing the percentage of contracted revenue that will be recognized beyond the next 12 months.

 

 

 

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What telephones and television can teach us about the adoption of broadband

New technology can help transform lives and communities all over the world. In the United Statesthe FCC’s most recent report found that more than 21 million Americans lack broadband access. And Microsoft’s data suggest that as many as 162.8 million people in United States do not use the internet at broadband speeds.

Based on the way older technology was rolled out, waiting for organic rates of adoption to close that digital divide is not an option. Especially when the physical infrastructure required to support wires is concerned.  

[Subscribe to Microsoft on the Issues for more on the topics that matter most.] 

Lessons from the past 

Landlines are an example of a wired technology that was slow to take off. Alexander Graham Bell made the first long-distance telephone call in 1877. But it was not until a century later that the technology reached everyone.   

Cell phones, however, took just 14 years to get to the point where just about everyone in the U.S. had one. More recently, the smartphone made even that achievement look sluggish; within eight years it, too, had reached majority adoption.  

Likewise, it took 25 years for radio to reach near-majority adoption across the U.S. By comparison, cable TV was just above 60% within the same time period. 

The slow adoption of the landline compared to the smartphone – as well as cable TV in relation to color TV and radio – can be seen below 

Chart showing adoption of the landline compared to the smartphone, cable TV, color TV and radio
Source: Our World in Data

Similarly, the adoption of electricity was slow. Household electricity wasn’t commonplace until the 1920s, and then only in cities. It revolutionized almost every aspect of life in the cities and suburbs. But in rural areas of the U.S., only 10% of the 6 million farms were connected by 1930.

The slow adoption of wired technologies compared to wireless technologies can be seen in this graph. The penetration of wired technologies plateaus at around 70% in the U.S.

Chart showing wired technologies compared to wireless technologies
Source: Our World in Data

Closing the gap

The reasons for slow rates of wire-based take-up are numerous, and include lower population densities and greater distances between dwellings.

Microsoft believes closing today’s digital divide is a priority and that failing to do so risks leaving behind millions of people.

Fast, reliable internet access is now a necessity for everything from accessing educational resources and building a business, to finding a job and accessing better healthcare.

The Microsoft Airband Initiative is one route to closing the gap. It is based on providing coverage via a range of technologies, including TV white spaces – those unused parts of the broadcast frequency.

Ensuring that last 30% adoption is given the support needed is something that can’t be left to the market alone. It calls for a collaborative approach to finding solutions and overcoming barriers.

For more on the Microsoft Airband Initiative, visit www.microsoft.com/en-us/airband/technology. And follow @MSFTIssues on Twitter.

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Printing in the cloud—Lexmark digitalizes its future with a modern workplace and Microsoft 365

Today’s post was written by Brad Clay, Senior Vice President, Chief Information and Compliance Officer at Lexmark International.

This is a fascinating time to be talking about the printer industry. It’s no surprise that the digitization of business contributed to a decline in traditional printing. However, most people don’t know that in the last 10 years, Lexmark reinvented itself as a tech-enabled company to achieve what we call our “digital thread strategy.” Even back then, we saw the printer less as a standalone device and more of an Internet of Things (IoT)–enabled component of business. Today, our average printer is equipped with more than 120 sensors dedicated to collecting data that we use to feed our R&D function and to enhance customer service. All this is stored in a single globally managed print services platform that services millions of printing devices across 170 countries/regions.

But as customers’ expectations for capability and service at the individual printer level—what I call “mass customization”—accelerates, Lexmark must be ready with innovative new services that take advantage of the scale and AI of cloud computing. Part of my role as CIO is to make sure that Lexmark remains ahead of industry trends. To that end, we’re transforming our work environment so that employees can achieve the level of productivity needed to deliver the innovative services our customers require. Microsoft offers a complete interoperable suite of cloud services that now forms the foundation for our digital transformation story. We had come a long way toward IoT-enabling our business, but the ability to leverage the Microsoft cloud platform means we can deploy industry-leading offers that take the IoT capabilities of our managed service platform to the next level. We’re using everything from Microsoft Azure to Microsoft 365 to Microsoft Dynamics 365.

As we expand our existing IoT expertise and drive the printer industry into the digital age, we’re innovating and using the Microsoft cloud platform to solve our customers’ problems in amazing new ways. Our Connected Field Service takes data from our Lexmark IoT Hub, augmented by Azure Machine Learning, and feeds information into Dynamics 365, so we can make predictive diagnostics for individual machines and alert service technicians to be ready. We just launched Lexmark Cloud Print Infrastructure as a Service, which also works off the Microsoft cloud platform. This provides access to a modern, secure cloud-based print environment via a subscription service. Customers pay only for print capacity, rather than owning and managing their printers.

A year ago, we had no relationship with Microsoft. We used other providers for email, teleconferencing, collaboration, security, digital workplace, customer relationship management, and business intelligence. We were looking at the future of connected print service when our architecture team laid out the value of the Microsoft cloud ecosystem. It was easy to see the rationale of moving away from a best-in-class approach to technology.

A key component of our transformation plays out in the workplace, where we use Microsoft 365 to enable highly secure global collaboration at an unprecedented level. Across the business, we use Microsoft Teams for morning checkpoints, video calls, documentation authoring, file sharing, and persistent chat. Ubiquitous and contextual collaboration drives organizational agility and accelerates the business. It was a major driver behind adopting Teams and the move to Microsoft.

Empowering employees fosters innovation, and here, the digital transformation at Lexmark delivers another benefit. Tools like Teams contribute to a culture of empowerment, where employees don’t have to rely on IT to start the next great project or to work together on the next innovation for Lexmark customers. With these products and services being designed to take advantage of Azure and Dynamics 365 for Sales, it’s easy to see the value of an end-to-end Microsoft cloud computing platform.

Under our Global Optimization 365 (GO365) program, we completely retooled the business in less than a year, retiring 13 legacy solutions. Thanks to cloud computing, we’ve reduced our IT spend year over year by 25 percent, and our partnership with Microsoft heavily enabled that. As we take advantage of the integrated security tools that are built into the Microsoft cloud platform, we’re seeing alerts and events communicated behind the scenes, in a consistent way, providing insights into the threat landscape and helping meet our security requirements—with less effort from IT. Moving to the Microsoft cloud platform, we doubled our security operations capacity and performance in just one year based on the number and quality of the feeds coming into our security information and event management solution and the ability of our security operations team to clear incidents. And all the while, we continue to refine our competitive advantage: that idea of mass customization, where we can deliver IoT-enabled printing services to customers at a price point that we don’t think anybody else can touch.

As we build on the promise of the cloud in the world of printers, we’re looking forward to working with Microsoft all the way.

—Brad Clay

Read the full case study to learn more about Lexmark’s move to a modern workplace.

New cyberthreats require new ways to protect democracy

Man and woman look at Microsoft ElectionGuard demos
Microsoft ElectionGuard demos on July 17, 2019 at the Aspen Security Forum in Aspen, Colorado.

Starting today at the Aspen Security Forum we’re demonstrating the first voting system running Microsoft ElectionGuard as an example of how ElectionGuard can enable a new era of secure, verifiable voting. The demo shows how it’s also possible to make voting more accessible for people with disabilities and more affordable for local governments while increasing security. Finding new ways to ensure that voters can trust the election process has never been more important. The world’s democracies remain under attack as new data we are sharing today makes clear. ElectionGuard and the range of offerings from Microsoft’s Defending Democracy Program, as well as tools from others in the technology industry and academia are needed more than ever to help defend democracy.

Let’s start with a quick look at the newest data available to us. In the past year, Microsoft has notified nearly 10,000 customers they’ve been targeted or compromised by nation-state attacks. About 84% of these attacks targeted our enterprise customers, and about 16% targeted consumer personal email accounts. While many of these attacks are unrelated to the democratic process, this data demonstrates the significant extent to which nation-states continue to rely on cyberattacks as a tool to gain intelligence, influence geopolitics or achieve other objectives.

The majority of nation-state activity in this period originated from actors in three countries – Iran, North Korea and Russia. We have seen extensive activity from the actors we call Holmium and Mercury operating from Iran, Thallium operating from North Korea, and two actors operating from Russia we call Yttrium and Strontium. This data has been compiled by the Microsoft Threat Intelligence Center which works every day to track these global threats. We build this intelligence into our security products to protect customers and use it in support of our efforts to disrupt threat actor activities through direct legal action or in collaboration with law enforcement. But let’s be clear – cyberattacks continue to be a significant tool and weapon wielded in cyberspace. In some instances, those attacks appear to be related to ongoing efforts to attack the democratic process.

Since the launch of Microsoft AccountGuard last August, we have uncovered attacks specifically targeting organizations that are fundamental to democracy. We have steadily expanded AccountGuard, our threat notification service for political campaigns, parties, and democracy-focused nongovernmental organizations (NGOs), to include 26 countries across four continents. While this service is relatively new, we’ve already made 781 notifications of nation-state attacks targeting organizations participating in AccountGuard. This data shows that democracy-focused organizations in the United States should be particularly concerned as 95% of these attacks have targeted U.S.-based organizations. By nature, these organizations are critical to society but have fewer resources to protect against cyberattacks than large enterprises.

Many of the democracy-focused attacks we’ve seen recently target NGOs and think tanks, and reflect a pattern that we also observed in the early stages of some previous elections. In this pattern, a spike in attacks on NGOs and think tanks that work closely with candidates and political parties, or work on issues central to their campaigns, serve as a precursor to direct attacks on campaigns and election systems themselves. We saw such attacks in the U.S. presidential election in 2016 and in the last French presidential election. In 2018 we announced attacks targeting, among others, leading U.S. senatorial candidates and think tanks associated with key issues at the time. Earlier this year we saw attacks targeting democracy-focused NGOs in Europe close to European elections. As we head into the 2020 elections, given both the broad reliance on cyberattacks by nation-states and the use of cyberattacks to specifically target democratic processes, we anticipate that we will see attacks targeting U.S. election systems, political campaigns or NGOs that work closely with campaigns.

So the problem is real and unabated. It is time to find solutions. Governments and civil society have important roles to play, but the tech industry also has a responsibility to help defend democracy. As part of our contribution at Microsoft, we believe ElectionGuard will be an important tool to protect the voting process and to ensure that all voters can trust the outcome of free democratic elections. We are excited that attendees of the Aspen Security Forum will be able to try our ElectionGuard demo. While ElectionGuard can run on a range of new or existing voting systems using hardware from a variety of manufacturers, the demo we’re showing this week was built using a Microsoft Surface tablet in kiosk mode, an Xbox Adaptive Controller as an optional accessible input device, and a standard printer.

Our ElectionGuard demo will showcase three core features.

First, people will be able to vote directly on the screen of the Microsoft Surface or using the Xbox Adaptive Controller, which Microsoft originally built in close partnership with organizations like the Cerebral Palsy Foundation to meet the needs of gamers with limited mobility. We hope this will help show the community how accessibility hardware can be built securely and inexpensively into primary voting systems and no longer requires separate voting machines to meet the needs of those with disabilities – ultimately making it easier for more people to vote.

Second, people using the demo will be provided with a tracking code that, when voting is complete, they will be able to enter into a website to confirm their vote was counted and not altered; the website will not display their actual votes. In the ElectionGuard software development kit (SDK) this verification feature will be enabled by homomorphic encryption, which allows mathematical procedures – like counting votes – to be done while keeping the data of people’s actual votes fully encrypted. The use of homomorphic encryption in election systems was pioneered by Microsoft Research under the leadership of Senior Cryptographer Josh Benaloh.  This tracking code is a key feature of the ElectionGuard technology.  For the first time voters will be able to independently verify with certainty that their vote was counted and not altered.  Importantly, in its final form the ElectionGuard SDK will also enable voting officials, the media, or any third party to use a “verifier” application to similarly confirm that the encrypted vote was properly counted and not altered.

Third, the demo will show how ElectionGuard can enable end-to-end verifiable elections for the first time while retaining the familiarity and certainty of paper ballots. The demo will provide voters with a printed record of their votes, which they can check and place into a physical ballot box, with verification through the web portal serving as a supplemental layer of security and verifiability.

ElectionGuard is free and open-source and will be available through GitHub as an SDK later this summer. This week’s demo is simply one sample of the many ways ElectionGuard can be used to improve voting, and the final SDK will also enable features like Risk Limiting Audits to compare ballots with ballot counts and other post-election audits.

We will not distribute commercial voting systems like the one we’re demoing this week but instead are partnering with the community of election technology suppliers that already serve state and local governments. We previously announced that we have partnerships with suppliers that build and sell more than half of the voting systems used in the United States today. Today, we’re excited to announce that we’re also now partnering with Smartmatic and Clear Ballot, two of the leading voting technology vendors, and Dominion Voting Systems is actively exploring the inclusion of ElectionGuard in their offerings.

In the coming months, we will also announce new details about our partnership with Columbia University’s Columbia World Projects. Columbia professors in statistics, political science, computer science, and international and public affairs will be joining forces with Microsoft to bring ElectionGuard to life by piloting the technology in the 2020 elections.

No one solution alone can address cyberattacks from nation-states. As we’ve seen, attackers will take any avenue to gain intelligence and disrupt the democratic process. That’s why Microsoft’s Defending Democracy Program has also offered Microsoft 365 for Campaigns and AccountGuard to protect political campaigns, parties and democracy-focused NGOs, and it’s why we’ve partnered with NewsGuard to defend against disinformation.

At the same time, no single company can tackle these issues, and the need to protect democracy is more important than corporate competition. We applaud similar contributions from companies like Twitter, Facebook and Google; it’s also why Microsoft’s Defending Democracy program is supporting efforts from those like the Harvard Kennedy School of Government’s Belfer Center, Columbia World Projects at Columbia University, research underway by Princeton University, and the Oxford Internet Institute’s Computational Propaganda Project.

At the Aspen Security Forum and in the months to come we need to have an honest conversation about threats, but more importantly a conversation about all the emerging tools available to stop them. Microsoft and our Defending Democracy program are committed to our responsibility to the United States and other world democracies to provide tools and technology to combat these threats.  As you read this post and participate in the Aspen Security Forum discussions in person or over social media, I hope you’ll give equal thought both to the problems and to the solutions.

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Looking back, looking ahead: Customers are driving capabilities for their business and people

This week in Las Vegas, at Microsoft Inspire, our annual partner event, I had several conversations about  the year we’ve had and what is next for the industry, including opportunities to bring the latest innovations to our mutual customers. Together we are building incredible momentum, truly transforming industries and redefining the art of what is possible. As we move into this new fiscal year, I am particularly energized by the traction I see with open cloud engagements – and the collaborative nature of our partnerships with companies across the world.

This morning’s news of our extensive and multi-year strategic collaboration with AT&T is another example of partnering to deliver unique solutions for our mutual customers, leveraging the strength of AT&T’s network and our cloud expertise. We expect our customers to benefit across a range of scenarios where 5G can enable critical near-instantaneous communications across industries. For example, imagine a first responder using AI-powered live voice translation to quickly communicate with someone in need who speaks a different language. Microsoft will be AT&T’s preferred cloud provider for non-network applications on Microsoft Azure and support AT&T as it consolidates its data center infrastructure and operations. In addition, AT&T will provide most of its workforce with robust cloud-based productivity and collaboration tools with Microsoft 365.

Unilever, a company whose products touch 2.5 billion consumers every day, also made a big impression this week at Microsoft Inspire. Dave Penrith, chief engineer at Unilever, joined me onstage to showcase how digital is empowering the company’s nearly 155,000 employees globally to do their best work with Microsoft 365 (including Teams and Yammer). Unilever is also building custom apps that harness real-time insights from data with PowerApps and Power BI and using Azure IoT’s digital twin technology to represent the physical production lines in its Valinhos Dove factory to digitize its supply chain network.

Of course, Microsoft Inspire is just one moment in time. Over the past 12 months, we’ve made headway across a diverse set of customers and industries.

Earlier this year, in the health care industry, we announced a seven-year, strategic cloud partnership with Walgreens Boots Alliance (WBA). WBA will harness the power of Microsoft Azure, Microsoft’s cloud and AI platform, Microsoft 365, health industry investments and new retail solutions with WBA’s customer reach, convenient locations, outpatient health care services and industry expertise to make health care delivery more personal, affordable and accessible for people around the world. Most recently, UCLA Health shared how they are moving to our cloud to help speed research and improve patient care, and our new multi-year strategic alliance with Providence St. Joseph Health will harness the power of Azure and AI to deploy next-generation solutions in health care and power their employees with Microsoft 365 and Teams.

These are just some of the recent examples that highlight Microsoft’s customer-first approach. In fact, the world’s leading companies choose Azure for their mission-critical workloads, including more than 95 percent of the Fortune 500. In addition, this year we shared stories with retail industry leaders like Walmart, Kroger, Gap, Inc., Albertsons Companies, Starbucks, Neiman Marcus and Coles, and in the automotive industry with Daimler, BMW, Volkswagen and Renault Nissan Mitsubishi. With manufacturing, Airbus demonstrated how HoloLens and mixed reality are helping double its life-to-date aircraft production while improving quality, safety and security.

We continue to invest in technology partnerships to ensure Microsoft’s cloud is the best platform for our customers not only to access all their data, but to understand, process and act on that data to innovate.  Microsoft’s open cloud approach has been demonstrated time and again. We continue to advance our Open Data Initiative with SAP and Adobe, including progress announced earlier this year empowers customers like Coke, Unilever, Walmart and HP to build data models that meet their enterprise needs. In the past quarter, we announced a strategic partnership with Dell Technologies to provide customers with a fully native, supported and certified VMware experience on Microsoft Azure and the ability to extend Microsoft 365 and Windows Virtual Desktop. We announced a cloud interoperability partnership with Oracle using Azure services like Analytics and AI, and are continuing our work with Red Hat to make its extensive portfolio of technologies available on Azure. Plus, we announced last week that Service Now, running on Microsoft Azure, will enable enterprise customers in certain highly regulated industries, such as government, to accelerate their digital transformation and drive new levels of insights and innovation.

It is humbling to see all the ways our customers and partners are embracing technology. Whether large or small, companies are driving new experiences and solutions across every industry, redefining innovation and creating impactful change for the future of their businesses and employees. Their journeys are powerful, and we are fortunate to have the opportunity to be their trusted partners along the way.

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Find out what Xbox will be up to at gamescom 2019

Following this year’s incredible E3 and the breathtaking reaction we’ve had from our fans, we’re excited to let you know that Xbox will be coming to gamescom 2019 in Cologne, Germany. We’ll be bringing a great line up of games to the event from developers around the world with almost 200 gameplay stations in our booth, including the first public hands-on of both Minecraft Dungeons, Horde Mode in Gears 5 and fans in Germany can also try Project xCloud for the first time.

Here’s a quick overview of what we’ll be getting up to at the show this year:

Inside Xbox live from Cologne
To kick off the week, we’ll be hosting a special episode of Inside Xbox live from the Gloria Theatre in Cologne. Tune in Monday, August 19 at 5:00 p.m. CEST (8:00 a.m. PDT) for the latest news, games, accessories, and features that we can’t wait to tell you more about!

You can catch the show on xbox.comMixerTwitchYouTubeFacebook, and Twitter.

Xbox Open Doors
Held at the Gloria Theatre on Wednesday, August 21 to Friday, August 23, Xbox Open Doors offers fans a multiday experience during the week of gamescom. Entry to Xbox Open Doors is free and fans will be able to participate in community events, game tournaments, panel sessions and other exciting experiences. Stay tuned for more information and announcements about Xbox Open Doors.

Xbox Booth
The Xbox booth will feature nearly 200 gaming stations with a fantastic line up of titles across a variety of genres and platforms, with many of these experiences coming to Xbox Game Pass for Console and Xbox Game Pass for PC at launch. If you’re coming to the show, make sure you pay us a visit – we’re in Hall 8 of the Koelnmesse (access via North entrance).

gamescom will be the first time that fans in Europe will have the chance to jump in and try out many of our newest gameplay experiences from Xbox Game Studios including Age of Empires II Definitive Edition, Battletoads, Bleeding Edge, Gears 5, Halo: The Master Chief Collection on PC, Minecraft Dungeons and more. In addition, we’ll have several highly anticipated third-party games available to play at the booth, including Borderlands 3, Doom Eternal, NBA 2K20, and Tom Clancy’s Ghost Recon: Breakpoint. Fans at gamescom will also be amongst the first in Europe to get hands-on with Project xCloud and experience the true power of cloud gaming on mobile.

Lastly, at Xbox, we believe that gaming should be safe, inclusive, and accessible for all, and in that spirit we’re excited to announce that our booth is even more accessible to fans at the show this year. This includes Xbox Adaptive Controllers available for nearly every game on the booth, wheelchair access at every point of the booth and sign language interpreting support for all on-booth programming in both English and German.

Windows Gaming Powered by Xbox Game Pass
Featuring Xbox Game Pass for PC titles such as Halo: The Master Chief Collection, Age of Empires 2: Definitive Edition and more at our Xbox booth, you can also check out the latest PC gaming hardware at our booth dedicated to gaming on Windows PC. We’ll also have custom-built PCs from BoostBoxx by CSL, the latest gaming laptops and desktops from Acer and other partners showcasing high-quality components that deliver powerful PC gaming experiences. Fans can even try the goliath of gaming chairs, the Predator Thronos!

Visit the Xbox Official Gear Shop
Returning to gamescom in partnership with Game Legends, come and visit the Xbox Official Gear Shop in the gamescom fanshop arena. Fly your gaming colors and show off your fandom for Xbox and award-winning franchises like Gears of War, Halo, and Sea of Thieves with all new apparel and collectibles including the gamescom exclusive Xbox Green Tech Sphere pin!

Show opening times are as follows:

  • Tuesday, August 20 – 9:00 a.m. until 7:00 p.m. CEST (press/trade only day)
  • Wednesday, August 21 – 9:00 a.m. to 8:00 p.m. CEST
  • Thursday, August 22 – 9:00 a.m. – 8:00 p.m. CEST
  • Friday, August 23 – 9:00 a.m. – 8:00 p.m. CEST
  • Saturday, August 24 – 9:00 a.m. – 8:00 p.m. CEST

Remember to keep your eyes on Xbox social channels for the latest news and updates surrounding Xbox at gamescom 2019 – Mixer, Facebook, Twitter – we’ll keep you updated with all the great activity happening from the show. Can’t wait to see you there!

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Digital distribution centers — The future is here

The pace of change has never been as fast as it is now. Globally, the population is becoming more urban and income levels are rising. By 2050, nearly 70 percent of the global population will live in cities or urban areas—that’s six billion people. Consumer behavior has also materially changed over the last decade, and omnichannel retail, personalization, and demand for same day deliveries are growing. To cater to the changing landscape, urban distribution centers that stage products closer to users within large cities are on the rise to enable faster delivery and greater customization.

Within the four walls of the distribution center, picking and packing tasks account for more than 50 percent of the total labor cost of warehousing operations. Access to labor has become increasingly challenging, particularly in urban centers, and staffing levels shoot up five to ten-times normal levels during the holiday season. Space constraints and difficulty in staffing are pushing companies to look at adopting distribution center technologies that cut labor costs, optimizes the flow of products, and improves productivity and utilization of these centers.

Since announcing Microsoft’s $5B commitment to developing an industry leading internet of things (IoT) platform last year, we’ve continued to work with our ecosystem partners to build solutions to address such problems. In “Our IoT Vision and Roadmap” session at Microsoft Build, we announced a partnership with Lenovo and NVIDIA, to bring advanced artificial intelligence (AI) to Azure IoT Edge. The demonstrated solution showed Lenovo hardware, a single SE350 Edge Server, running the Azure IoT Edge runtime with NVIDIA DeepStream to process multiple channels of 1080P/30FPS H265 video streams in real-time, transforming cameras into smart sensors that understand their physical environments and use vision algorithms to find missing products on a shelf or detect damaged goods. Such applications of Azure IoT Edge technology enable customers to quickly and cost effectively deploy retail solutions that optimize their logistics operations.

Today, we are excited to announce the next milestone on this journey, the preview of Lenovo’s Digital Distribution Center (DDC) solution. Lenovo’s DDC is an IoT solution developed in collaboration with NVIDIA and Microsoft. Through real-time scalable package detection, tracking, and validation, DDC delivers for better optimization and increased utilization of distribution centers for retail, manufacturing, and logistics operations. The solution uses multi-video stream analytics with artificial intelligence and machine learning inferencing to self-learn, optimize, and scale. Additional releases will include geofencing alerts, palletization, depalletization, and last-mile sorting.

Start your supply chain transformation with the Digital Distribution Center. Automate redundant, manual processes, increase employee productivity and safety, and maximize distribution center effectiveness

Start your supply chain transformation with the Digital Distribution Center. Automate redundant, manual processes, increase employee productivity and safety, and maximize distribution center effectiveness

DDC is built with Azure IoT Central, Microsoft’s fully managed IoT app platform that makes it easy to connect, monitor, and manage your IoT devices and products. Azure IoT Central simplifies the initial setup of your IoT solution and reduces the management burden, operational costs, and overhead of a typical IoT project. This allows solution builders to apply their energy and unique domain expertise to solving customer needs and creating business value, rather than needing to tackle the operating, managing, securing, and scaling of a global IoT solution. Partners like Lenovo and NVIDIA add unique value through schemas that are relevant to industry solutions like DDC, including common industry hierarchies that organize people, places, and environments.

Join us for a demo of our solution at the Microsoft partner booth during Microsoft Inspire—July 14-18, 2019, in Las Vegas, Nevada. If you are interested in joining our preview program about the solution, please contact IoTSolutions@lenovo.com