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A Second Look at Microsoft after its first Quarterly loss

Microsoft CEO Steve Ballmer comments on the Windows 8 operating system before unveiling Surface, a tablet computer to compete with Apple's iPad. ?t=1342733984&s=51
We delivered record fourth quarter and annual revenue, and were fast approaching the most exciting launch season in Microsoft history, said Steve Ballmer, chief executive officer of Microsoft. Over the coming year, well release the next versions of Windows, Office, Windows Server, Windows Phone, and many other products and services that will drive our business forward and provide unprecedented opportunity to our customers and partners. The combination of solid revenue growth and rigorous cost discipline drove doubledigit operating income growth for the quarter, adjusting for the goodwill impairment and deferred revenue, said Peter Klein, chief financial officer of Microsoft. We are focusing our resources in strategic areas that will deliver shareholder value and long-term growth opportunities. From the FY12 Q4 Earnings Release.

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Table of Contents
No. 1. 2. 3. 4. 5. 6. Topic Summary Brief Introduction to Analysis Breakeven Model and the Simple Linear Law Microsoft Profits-Revenues Analysis Appendix I: Line of Excellence (LOE) for Microsoft Appendix II: Bibliography list of related articles Page No. 3 4 5 7 13 17

LOS ANGELES, CA - JUNE 18: Microsoft CEO Steve Ballmer shows the new tablet called Surface during a news conference at Milk Studios on June 18, 2012 in Los Angeles, California. Photo by Kevork Djansezian/Getty Images eal_lesson_is_that_innovation_is_hard/146537702.jpg.CROP.rectangle3-large.jpg

Note: Tables of all the raw data analyzed are provided to permit readers to do their own analysis and prepare their own plots to verify all the findings reported here.

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1. Summary
It has not been generally appreciated that all companies obey a simple universal law, y = hx + c, relating revenues x and profits y. A careful review of the historical profits-revenues data for Microsoft, for the last two decades (1993-2012), with the aid of the x-y profits-revenues diagrams, shows that Microsoft has been essentially operating along a series of parallels, y = hx + c = h(x x0), with a positive slope h and a negative intercept c. These are called Type I lines (h > 0, c < 0). Microsoft was first operating along Line A (1996-2000) and then made a transition to the parallel Line B (2007-2011). The slope h 0.50 for the two Type I parallels. During the transitional years, profits and revenues increased at a much lower rate as revealed by several transitional (x, y) pairs. The transitional line, called a Type II line, has smaller positive slope h and a positive intercept c (as opposed to the negative intercept for the Type I line). Exactly similar conclusions are also drawn from the cumulative profits and revenues data for a single year. There is a back-and-forth switch from Type I to Type II behavior and vice versa, but over the long term, the slope h has been decreasing slowly and the intercept c has also been decreasing, thus increasing the minimum, or cut-off, revenue needed to produce a profit. Thus, we can expect a transition back to the Type I operating line in 2013 or the establishment of a new Type I line with a higher x0 (smaller intercept c, more negative value).

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2. Brief Introduction to Analysis

The main purpose here is to follow up on the (rather lengthy) discussion initiated in Ref. [1] below and take a brief second look at Microsofts profits-revenues performance over the two decades (1993-2012). 1. Published July 25, 2012. It has not yet been generally appreciated that all businesses follow the same, very simple, mathematical law, see bibliography list provided in Ref. [1] and also included at the end of the present article, for convenience. It is actually a universal law, which can be shown to be a consequence of the classical breakeven analysis for the profitability of a company. In the real world, this manifests itself as a simple linear law y = hx + c = h(x x0) where x is revenues and y is profits and h and c are constants that can be deduced from the financial data, for example with the Microsoft annual and quarterly data. The constant c can be related to the fixed costs and the constant h to the unit variable cost in the breakeven model. Note also that x0 = - c/h, which depends on both the slope h and the intercept c, represents a critical revenue below which no profits will be reported and is essentially the same as the breakeven revenue in classical profitability analysis. Depending on the numerical values of h and c (positive or negative), we can observe three types of profits-revenues graphs, which lead to what may be called Type I, Type II, and Type III behavior. Thus, ALL businesses can be evaluated in terms of the three basic types of profits-revenue graphs. Examples of ALL three types of behavior have been provided in recent articles on this topic (all written since the Facebook IPO on May 18, 2012) that are available on the Internet, see link and bibliography.

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3. Breakeven Model and the Linear Law

Very briefly, the classical breakeven model for profitability of a company, which leads to the conclusions in 2, can be described as follows. Consider a company making and selling N units of a product. Let a denote the fixed costs and b the unit variable costs. The total costs C is the sum of the fixed and the variable costs and is given by C = a + bN. If p is the unit price, the total revenues R generated by the sales is given by R = pN. This also means N = R/p, a relation we will use shortly. The Profits P can now be deduced using the universal statement that applies to all companies, big and small, viz., Profits = Revenues - Costs. Thus, we get, P = R - C = pN - bN - a = (p -b)N - a = [(p - b)/p] R - a = hR - a This implies a linear relation between profits P and revenues R, and follows when we eliminate N using N = R/p. It can be rewritten as y = hx + c where x is revenues and y is profits and h and c are constants whose values can be deduced from the (a, b, p) triplet for each product. More generally, the numerical values of h and c can be deduced from the financial statements (the 10-K and the 10-Q) filed with the SEC every quarter and also readily available at various internet sources.

Slope h = 1 - (b/p) Determined by the unit variable cost b and unit price p Intercept c = - a Determined by the fixed cost, a

The linear law y = hx + c also suggests three different possibilities, depending on the numerical values of the constants h and c. This gives rise to what may be called Type I, Type II, and Type III companies. Examples of all three companies can be found in the real world (see The three types can be described, briefly, as follows:

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1. Type I (h > 0, c < 0, positive slope, negative intercept which also means a positive intercept on the x-axis, or the revenues-axis). Both profits and profit margins increase with increasing revenues. This is usually the case for all companies in the very early stages of growth and emergence into profitability. (The most recent data for RIM, Limited, reveals an unusual INVERSE Type I; revenues and profits are both going down together yielding a positive slope h > 1.) 2. Type II (h > 0, c > 0, positive slope, positive intercept). Profits increase with increasing revenues but profit margins decrease with increasing revenues. Also, as we see with Microsoft, profits usually increase at a lower rate than in Type I stage. 3. Type III (h < 0, c > 0, negative slope, positive intercept, and yes, very rarely also with negative intercepts on both axes). Profits decrease with increasing revenues, or vice versa, i.e., profits can also increase with decreasing revenues. Correspondingly, profit margins can either go down with increasing revenues, or up with decreasing revenues. Further discussion of these points may be found in Ref. [1], the Fresh Look article on Microsoft, and in other articles cited. In this article, we will briefly reconsider the Microsoft profits-revenues data. While confirming the findings in Ref. [1], the analysis here also provides some additional insights about how costs have been rising, slowly, at Microsoft. (The same is true of ALL companies, if the data is analyzed over several years, as outlined here.) We see a back and forth movement from Type I to Type II behavior, when we consider the cumulative profits and revenues data for a single year. Also, we see a slow transition from one Type I line to another, with an interim Type II transition, when we consider the multim-year data for the last two decades. These transitions all lead to the conclusion that costs have increased gradually over the years. Even so, Microsoft is, perhaps, one of the most exceptional companies in that the numerical value of the slope h, as we see here and in Ref.[1], is among the highest that we can deduce for any large corporation with revenues approaching nearly $75 billion annually. Further improvements in profits and cost reductions can be achieved by gaining a deeper understanding of the fundamental (a, b, p) triplet
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which manifests as the slope h and the intercept c in the linear law. The analysis presented for Apple and Kia Motor Company is particularly noteworthy in this context; see Refs.[16, 17] in the bibliography. A simple methodology for predicting the revenues of a company can be developed, as discussed in these two articles, if one knows the number of units N sold to generate the revenues. In the case of an automotive company like Kia, the total number of vehicles sold (without regard to brands and sub-categories) can be shown to scale nicely as the revenues. A similar scaling law can be shown to apply for Apple Inc., if we simply add the units sold for the four main products (iPhones, iPads, iPods, and Mac computers) and create a composite count N, see

4. Microsoft Profits-Revenues Analysis

The profits and revenues data must be reported quarterly by all public companies such as Microsoft. The quarterly data are typically combined together, during the course of a single fiscal year, and reported as cumulative values for the preceding 3-month, 6-month, 9-month, and 12-month periods and the reckoning of profits and revenues starts all over again in the new fiscal year. An example of this for the FY2005 may be found in Table 1. Although individual profits and revenues fluctuate from one quarter to the other, the cumulative values always increase steadily during the year. The cumulative values at the end of the fourth quarter become the annual values for the fiscal year, see Table 2, which includes the annual profits and revenues data for the last two decades (1993-2012). The annual figures for 2005 may be seen to agree with the cumulative figures for 4Q05.

Table 1: Cumulative Revenues and Profits in Fiscal Year 2012

Quarter 1Q05 2Q05 3Q05 4Q05 Revenues, x $ Billions 9.189 10.818 9.620 10.161 Profits, y $, billions 2.528 3.463 2.563 3.700 Cumulative Revenues, R 9.189 20.007 29.627 39.788 Cumulative Profits, P 2.528 5.991 8.554 12.254
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Table 2: Annual Profits-Revenues data for Microsoft (1993-2012)

Year 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 Revenues, x ($, billions) 73.723 69.943 62.484 58.437 60.420 51.122 44.282 39.788 36.835 32.187 28.365 25.296 22.956 19.747 15.262, 14.484 11.358, 11.936 8.671, 9.050 5.937, 6.075 4.649, 4.714 3.753, 3.786 Profits, y ($, billions) 16.978 23.150 18.76 14.569 17.681 14.065 12.599 12.254 8.168 7.531 7.829, 5.355 7.346 9.421 7.785 4.490, 4.462 3.454 2.195 1.453 1.146 0.953

Note: The profits and revenues data compiled here were obtained from Annual Reports at the Microsoft website. Multi-year data are available in several annual reports. There were some slight discrepancies between the figures here and in Table 2 of Ref. [1]. This does NOT affect the main conclusions. The discrepancies were cross checked carefully with multiple reports nts.aspx . In 2002 Annual Report values are 28.365 and 7.829; in 2004 Annual Report the values for 2002 are given as 28.365 and 5.355. In 2002 Annual Report, profits for 1998 is 4.490; In 1999 Annual Report, the 1998 values are 15.262 and 4.490, and the 1997 revenue is 11.936. In 1999 Annual Report, the 1998 revenue is given as 15.262 and the 1997, 1996, and 1995 revenues are the slightly higher values. In 1998 Annual Report, the lower values are given for 1997 to 1994; the 1998 values are 14.484 and 4.490. In 1997 Annual Report, the 1993 revenue is given as 3.753. In 1996 Annual Report values for 1996 are 8.671 and 2.195.
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The graph of the cumulative profits-revenues data during a single fiscal year is often linear, as seen in Figure 1. Furthermore, with a company like Microsoft, we do not see much scatter in the data. The diamonds in Figure 1, joined by the solid blue line, represent the data for 2007 and the red squares, joined by the dashed blue line, the data for 2005. The equations of these lines were deduced by considering the (x, y) pairs for 1Q and 4Q for each of the years. When the data fall approximately on a straight line, this is the simplest method that can be used to determine the numerical values of h and c in the law y = hx + c = h(x x0). Both Type I and Type II behavior described in 2 are seen here. The subtle interaction of the constants h and c can also be appreciated. The figure caption includes some additional comments in this regard.

Cumulative Profits, y [$, billions]


Type I line 2005 y = 0.318x 0.393



Type II line 2007 y = 0.263x + 0.639

-5 0 10 20 30 40 50 60 70

Cumulative Revenues, x [$, billions]

Figure 1: Cumulative profits and revenues for FY2005 (red squares) and FY 2007 (blue diamonds). For FY 2005: y = 0.318x 0.393 = 0.318(x 1.236) which is classified as a Type I behavior since h > 0 and c < 0 and x0 > 0. For FY2007, y = 0.263x + 0.639 = 0.263 (x + 2.432) which is Type II behavior, with h > 0, c > 0.
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The rate of increase of profits with increasing revenues, as measured by the slope h was actually higher for 2005 compared to 2007 although the cumulative profits and revenues at the end of the FY were higher for 2007. Notice that the small positive intercept means that 1Q07 profits were higher than for 1Q05 but the cumulative profits, as the months rolled by, were actually lower than the predicted by the dashed line for 2005 because of the lower value of h for 2007. Table 3: Operating lines for each fiscal year deduced from quarterly data Fiscal year 2005 2006 2007 2000 1999 1996 1995 2008 2009 Equation y = 0.32x 0.39 y = 0.27x + 0.47 y = 0.26x + 0.64 y = 0.41x - 0.02 y = 0.39x + 0.04 y = 0.25x - 0.015 y = 0.24x + 0.014 y = 0.339x + 0.287 y = 0.235x + 0.833 Slope h 0.3178 0.2738 0.2626 0.4114 0.3923 0.2548 0.2424 0.339 0.235 Intercept c -0.3928 0.4737 0.6387 -0.0242 0.038 -0.0148 0.0137 0.287 0.833 Comments Type I Type II Type II Type I Type II Type I Type II Type II Type II

y = 0.306x 0.385 0.306 -0.385 Type I 2010 y = 0.306x + 0.416 0.306 0.416 Type II 2012* y = 0.33x + 0.065 0.330 0.065 Type II 2011 * For FY2012, the slope h was determined between 1Q2012 and 3Q2012, because of the special write-off the resulting historic first ever quarterly loss. The operating equations for the most recent eight consecutive years (2005-2012) and for four earlier years (1999 and 2000) and (1995 and 1996), deduced as just described are summarized in Table 3. Notice the back-and-forth switching from Type I (small negative intercept c) and Type II (small positive intercept c) behavior. Also, a careful examination reveals a pattern. Besides the change in the sign of the intercept, Type I behavior is always accompanied by a higher slope than the Type II behavior. Profits increase much more rapidly when a company exhibits Type I behavior than when it exhibits Type II behavior, as confirmed by the plot prepared in Figure 1. Although, the absolute magnitude of the profits were higher
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in 2007, they were actually lower than the profits that could have been achieved if Type I behavior had continued in 2007 as in 2005. This rule is confirmed with the annual data plotted in Figure 2. Microsoft started operating on Line A (blue dashed line) in 1995, with profits increasing with increasing revenues. The profit margins also increased. This is Type I behavior as discussed in 2. This was then followed by a slow transition, over several years, to the second Type I Line B (solid blue line), the operating line established since 2007. During the transitional years, profits and revenues increased but at a much slower rate. The transitional years can be described by a Type II line, with the equation y = 0.165x + 5.636, deduced by joining the (x, y) pairs for 2000 on Line A and 2007 on Line B (see also Figure 6 in Ref. [1], which shows this transition, line joining 2005 to 2009 is used there, with the equation y = 0.124x + 7.31).

Annual Profits, y [$, billions]

Type I line (1996-2000) y = 0.506x 2.191



Type I line (2007-2011) y = 0.483x 10.62







Annual Revenues, x [$, billions]

Figure 2: The Profits-revenues diagram for Microsoft for 1993-2012. The Type I, dashed, Line A is deduced for the five year period (1996-2000), by joining (x, y) pairs for 1996 and 2000. The solid blue line is also a Type I line deduced for the most recent five year period (2007-2011, FY2012 is overlooked because of the 4Q
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loss). This joins the (x, y) pairs for 2007 and 2011. The slopes h are roughly the same and the lines are roughly parallel.

Notice again that the Type I lines (h > 0, c < 0) have a higher slope than the Type II lines. In the annual profits-revenues plot, the Type II line is usually a transitional line between two Type I behaviors (with a large change in the intercept), or even from Type I behavior to a Type III behavior (observed with some other companies, discussed in the reference list, a good example being Air Tran). In summary, although Microsoft has been a pre-eminent company since its founding in 1975, reporting record profits year-after-year, with ever increasing profit margins (due to the Type I behavior that we see here), a careful analysis of the profits-revenues (the cumulative quarterly data for a single year and the annual data for multi-years) shows a subtle increase in the costs as revealed by: a) The slowly decreasing values of the Type I slope for the last two decades. Since the slope h = 1 (b/p) in the simple breakeven model, this mean the unit variable costs b has increased and/or the unit price p has decreased (due to competitive pressures) or a combination of these two factors. b) The change in the intercept c, or the cut-off revenue x0 = - c/h. According to the breakeven model, the intercept c = - a, the fixed cost, for a company making and selling N units of a single product. For a real world company like Microsoft, the fixed cost is the cut-off revenue x0. The higher the value of x0, the higher is the minimum revenue required before profits are reported. When x > x0 profits increase at the fixed rate h, If revenues increase by a fixed amount x, profits always increased by the same fixed amount y = hx. c) As we see here, Microsoft has been able to convert nearly 50% of the additional revenue (over the minimum cut-off, or breakeven level) into profits. This is a very high rate of conversion of revenues into profits, unmatched by most companies in the modern corporate world.

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5. Appendix I Line of Excellence for Microsoft

It is clear that the simple linear law y = hx + c = h(x x0) relates the revenues x and profits y for Microsoft (and almost every company that we can study, see examples provided in the article cited in bibliography, Appendix II). However, what is not clear is the method of fixing the values of the numerical constants h and c in this relationship. We only need two (x, y) pairs to fix the slope h and the intercept c. Which two (x, y) pairs should be chosen? For example, in the Fresh look at Microsoft article, Ref. [1] in 2 at the beginning of this discussion, the following Type I equations were deduced to describe the transitions that Microsoft has gone through in the last two decades, see also the graph provided in Figure 5 of that article. Line A: y = hx + c = h(x x0) = 0.644x 5.37 = 0.644 (x 8.34) Line B: y = 0.603x 11.78 = 0.603 (x 19.5) Line C: y = 0.574x 17.02 = 0.574 (x 29.63) Notice that the numerical value of the slope h has decreased systematically, while the intercept c has decreased (becoming more negative), which is equivalent to a systematic increase in the positive intercept x0 = - c/h, made on the revenues axis: from $8.34 billion to $19.5 billion to $29.63 billion as Microsoft was operating on each of these lines (for brief periods) over the last two decades. The cut-off revenue x = x0 is the minimum revenue needed before profits will appear. Once the cut-off revenue is exceeded, profits increase at the fixed rate h (which is decreasing slowly over time). Thus, Microsoft was able to convert 64.4% of the excess revenues into profits when it was operating on Line A, the conversion rate dropped to 60.3% on Line B, and is now 57.4% on Line C. Slightly different numerical values of h and c have been deduced in this article (see Figure 2) Line A: y = 0.506x 2.19 = 0.506 (x - 4.33)

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Line B: y = 0.483x 10.61 = 0.483 (x 21.98) The cut-off revenue was $4.33 billion on Line A and has increased to $21.98 billion on Line B and the conversion rate of revenues into profits has dropped from 50.6% to 48.3%. Again, what dictates the choice of h and c? The analogy drawn earlier with Einsteins photoelectric law, discussed in some detail in the Fresh look at Microsoft article, is worth recalling. Einsteins law can be written as K = E W = hf W = h(f f0) where the cut-off frequency f0 is exactly analogous to the cut-off revenue x0 in the financial analysis. When a photon with the energy E = hf strikes the surface of a metal, it will eject an electron from within the metal. The energy of the electron K < E since some of the photons energy must be given up to do the work W to overcome the forces that bind the electron to the metal. The graph of K versus f is thus a straight line with the slope h, the Planck constant, and a finite positive intercept f0 = W/h on the frequency axis and finite intercept Won the K-axis. The intercept W made on the K-axis equals the work function of the metal and is exactly analogous to the intercept c in the profits-revenues law. Now, Einstein also points out that in order to determine the correct numerical value of the slope h (Planck constant) of the K-f graph, it is important to determine the maximum kinetic energy K of the electron. Electrons are ejected with a range of energies. But, only those with the highest energies are of interest since this highest energy is a true manifestation of the energy E = hf of the photon and therefore the true value of h will be revealed in such experiments. Likewise, since many values of h can be determined, it seems appropriate to seek the highest slope h on the profits-revenue diagram since this represents the highest rate at which the company is able to convert revenues, in excess of the cut-off x0, into profits. Such a line will be referred to as the Line of Excellence (LOE) and was discussed in the article on Google (see Ref. [12] in Appendix II). In the case of Microsoft, we can deduce three Lines of Excellence, with increasing slopes h and successively higher values of x0 associated with each LOE. The increasing values of x0 imply that fixed costs have been rising but Microsoft is also able to convert the excess revenues into profits at a higher and higher rate (which implies lower unit variable costs and/or lower unit price for the products sold). It is clear,
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therefore, that more definitive conclusions can be drawn when we determine the LOE for each time period, starting with the earliest time period here.

Annual Profits, y [$, billions]

30 25 20 15

5 0 -5 0 10 20 30 40 50 60 70 80



Annual Revenues, x [$, billions]

Figure 3: Lines of Excellence (LOE), the three Type I lines with the highest slopes h, at different times during the last two decades, as Microsoft made its transition from one Type I line to another, with intervening Type II transitions. The three blue dots on the x-axis (revenues-axis) are the cut-off revenues x0 associated with each LOE. The cut-off revenue x0 = - c/h increases with time as the company goes through these transitions. Line A (joining 1997 to 2000): y = 0.541x 3.01 = 0.541 (x 5.56) Line B (joining 2003 to 2005): y = 0.621x 12.47 = 0.621 (x 20.07) Line C (joining 2009 to 2011): y = 0.746x 29.01 = 0.746 (x 38.9) Again, the cut-off revenue x0 is increasing from $5.56 billion on Line A to $20.1 billion on Line B to $38.9 billion on Line C. However, the search for the LOE here reveals that the slope h has also been increasing (rather than decreasing, the earlier
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conclusion). Although the conversion rate of excess revenues into profits (75%) is high compared to the previous result (48.3%) in Figure 2, the cut-off revenue has also increased ($38.9 billion versus $21.98 billion). In summary, the idea of a Line of Excellence (LOE) suggested here, where we seek the highest slope h, is analogous to seeking the maximum kinetic energy of the electron in the photoelectricity experiment. Fixing the highest slope h during different time periods also permit a non-controversial interpretation of the rate of conversion of revenues (over and above the minimum cut-off revenue) into profits. The most important point to note is that while the cut-off revenue has increased over time, for Microsoft, the slope h has also increased over time (rather than decrease over time).

Courtesy: Uploaded by Shannonplong, July 30, 2012. Microsoft certainly seems to have

that extra
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5. Appendix II: Bibliography

Related Internet articles posted at this website Since the Facebook IPO on May 18, 2012
1. Current article with all others above cited for completeness, Published June 4, 2012 with several revisions incorporating more examples. 2. Basic discussion of three types of companies, Published May 24, 2012. Examples of Google, Facebook, ExxonMobil, Best Buy, Ford, Universal Insurance Holdings 3. Detailed discussion of Apple Inc. data. Published June 7, 2012. 4. Ford Motor Company graph illustrating pronounced maximum point, Published May 29, 2012. 5. Generalization of Plancks law, Published May 30, 2012. 6. Facebook and Google data are compared here. Published May 21, 2012. 7. Published May 19, 2012 (the day after IPO launch on Friday May 18, 2012). 8. Discussion of the meaning of entropy (using example given by Boltzmann in 1877, later also used by Planck to develop quantum physics in 1900). The example here shows the concepts of entropy S and energy U (and the derivative T = dU/dS) can be extended beyond physics with energy = money, or any property of interest. Published June 3, 2012. 9. The Future of Southwest Airlines, Completed June 14, 2012 (to be published).
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10.The Air Tran Story: An Important Link to the Future of Southwest Airlines, Completed June 27, 2012 (to be published). 11.Annies Inc. A Single-Product Company Analyzed using a New Methodology, Published June 29, 2012 12.Google Inc. A Lovable One-Trick Pony Another Single-product Company Analyzed using the New Methodology., Published July 1, 2012. 13.GT Advanced Technologies, Inc. Analysis of Recent Financial Data, Completed on July 4, 2012. (To be published). 14.Disappearing Brands: Research in Motion Limited. An Interesting type of Maximum Point on the Profits-Revenues Graph Published July 5, 2012. 15.Kia Motor Company: A Disappearing Brand, Published July 6, 2012. 16.The Perfect Apple-II: Taking A Second Bite: A Simple Methodology for Revenues Predictions (Completed July 8, 2012, To be Published), Published July 30, 2012. 17. Microsoft after the quarterly loss, Published July 25, 2012. 18. , Published July 30, 2012. 19. Single universal value of h for US, Canada and Japan in the unemployment law y = hx + c, Published July 24, 2012. 20., Published July 24, 2012.
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21. Published July 24, 2012. 22., Published July 22, 2012. 23. , Published July 19, 2012. 24. , Published July 12, 2012. 25. , Published July 10, 2012.

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About the author V. Laxmanan, Sc. D.

The author obtained his Bachelors degree (B. E.) in Mechanical Engineering from the University of Poona and his Masters degree (M. E.), also in Mechanical Engineering, from the Indian Institute of Science, Bangalore, followed by a Masters (S. M.) and Doctoral (Sc. D.) degrees in Materials Engineering from the Massachusetts Institute of Technology, Cambridge, MA, USA. He then spent his entire professional career at leading US research institutions (MIT, Allied Chemical Corporate R & D, now part of Honeywell, NASA, Case Western Reserve University (CWRU), and General Motors Research and Development Center in Warren, MI). He holds four patents in materials processing, has co-authored two books and published several scientific papers in leading peer-reviewed international journals. His expertise includes developing simple mathematical models to explain the behavior of complex systems. While at NASA and CWRU, he was responsible for developing material processing experiments to be performed aboard the space shuttle and developed a simple mathematical model to explain the growth Christmas-tree, or snowflake, like structures (called dendrites) widely observed in many types of liquid-to-solid phase transformations (e.g., freezing of all commercial metals and alloys, freezing of water, and, yes, production of snowflakes!). This led to a simple model to explain the growth of dendritic structures in both the ground-based experiments and in the space shuttle experiments. More recently, he has been interested in the analysis of the large volumes of data from financial and economic systems and has developed what may be called the Quantum Business Model (QBM). This extends (to financial and economic systems) the mathematical arguments used by Max Planck to develop quantum physics using the analogy Energy = Money, i.e., energy in physics is like money in economics. Einstein applied Plancks ideas to describe the photoelectric effect (by treating light as being composed of particles called photons, each with the fixed quantum of energy conceived by Planck). The mathematical law deduced by
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Planck, referred to here as the generalized power-exponential law, might actually have many applications far beyond blackbody radiation studies where it was first conceived. Einsteins photoelectric law is a simple linear law, as we see here, and was deduced from Plancks non-linear law for describing blackbody radiation. It appears that financial and economic systems can be modeled using a similar approach. Finance, business, economics and management sciences now essentially seem to operate like astronomy and physics before the advent of Kepler and Newton.

Cover page of AirTran 2000 Annual Report

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