Did Microsoft Alter Windows Sales Figures?

Saxophonist writes "InformationWeek claims to have analyzed Microsoft's most recent Form 10-Q and observed that a reported increase in earnings for the Windows unit may be due to accounting trickery rather than actual sales growth. Microsoft apparently increased its reported revenues for its Windows, Server & Tools, and Office units at least partly through shifting revenues from other units. While there may be nothing 'to suggest the company's revisions violate any accounting rules,' the actual growth in Windows sales was likely nowhere near the high double-digit percentage growth claimed. InformationWeek speculates that revenues from Xbox and Surface may have been among the revenues shifted to the other divisions."

Re:SOP?

[Chrisq]

I thought pretty much every publicly traded company did stuff like this?

Not just publically traded. I worked by a privatley owned company where basically each departments end of year bonus was decided by a bunfight to decide which department was responsible for how much revenue and at what cost. The only fixed thing was the company total, they shuffled things between departments and divisions at will.

Re:SOP?

[dbIII]

It's rumoured that Rupert Murdoch's Newscorp was like that for years with a flow of money from one company to another to give the illusion that the entire thing was above water and that he could afford to buy things like Fox.

Common Practice

[clyde_cadiddlehopper]

They're a Fortune 100 company. They did.

Yes. Most companies have a growing, but money-losing "star", a flat but highly profitable "cash cow" and a few others that are in between. It is common practice to disguise the actual performance of those business units by creatively defining segments for external SEC reporting.

Re:SOP?

[Higaran]

http://www.fiercemobilecontent.com/story/itunes-now-70-digital-music-sales-amazon-growing/2010-05-27 [fiercemobilecontent.com] I know this is kind of an old link but 70% of the market qualifies as monolopy. Plus the fact that they are about 30% of all music sold in the us every month. They are even under a DOJ invistigation. http://topnews.us/content/221070-apple-under-doj-investigation [topnews.us] also kind of an old link. Then they are trying to dictate other stuff, like the whole thing with flash. IMHO if the DOJ is investigationg you for anti-trust laws, then your pretty much a monolopy or on the verge of becomeing one.

Re:Yes

[DaveGod]

Actually, they didn't. Even a basic check, like reading the press release, tells you what they did.

Infoweek made at best a gaffe. They took the figures for the 3 months ended 30 Sept 2009 originally stated and compared them to the 30 Sept 2010 figures recently released, even though right beside those 2010 figures are the 30 Sept 2009 figures updated to reflect the new accounting policy.

Calculating using the figures sitting side-by-side, this change in policy does not distort growth. This what accounting rules require (at least under IFRS, I can't imagine US GAAP does differently), and why. MS also used the revised policy in the %'s given in the press release, so they are both under the same policies. Nowhere in the PR does MS refer to the faulty figures Infoweek is complaining about. Infoweek's article is all about them realising that they were using the wrong figures but not realising that it was due to their own mistake.

For Infoweek to compare against the wrong figures they had to ignore the comparatives given right there in a spreadsheet file given by MS and instead go find an old file, and ignore the prominent disclosure given to the change in the press release [microsoft.com] that provides the link to the filing:

In addition, we have recast certain prior period amounts within our Form 10-Q that conforms to the way we internally managed and monitored segment performance during the current fiscal year.

As for the deferral of income from Vista sales with W7 upgrade packs, that follows accounting rules too (well, assuming they calculated it properly). Regardless, the entire second paragraph is dedicated to explaining the impact of the accounting rule and even removing it to show the underlying performance:

Prior year results reflect the deferral of $1.47 billion of revenue, an impact of $0.12 of diluted earnings per share, relating to the Windows 7 Upgrade Option program and sales of Windows 7 to OEMs and retailers before general availability in October 2009. Without the deferral in the prior year, first-quarter growth rates for revenue and operating income were 13% and 20%, and growth in net income and earnings per share were 16% and 19%, respectively.

Oh and there's reconciliations and everything in the accompanying slides. Infoweek's "exclusive" refers to their mistake regarding policy changes that were very prominently disclosed.

I know MS isn't exactly celebrated around here, but posting this kind of thing detracts considerably from the credibility of the more valid criticisms.