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Microsoft Businesses The Almighty Buck Windows

Did Microsoft Alter Windows Sales Figures? 165

Posted by CmdrTaco
from the smoke-and-mirrors dept.
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."
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Did Microsoft Alter Windows Sales Figures?

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  • Yes (Score:3, Funny)

    by Anonymous Coward on Monday November 15, 2010 @11:48AM (#34231218)

    They're a Fortune 100 company. They did.

    • Re:Yes (Score:5, Insightful)

      by hsmith (818216) on Monday November 15, 2010 @12:15PM (#34231502)
      Well look at it this way - they aren't fudging their balance sheets as bad as the US Government
      • by peragrin (659227)

        The US government is better than NY state government. NY state budgeted 12 million dollars over 3 years for a new type of drivers license. They received 3 million over 2+ years.

        That is the real problem with government accounting. They don't know how much money they really are working with only what they think they might be estimating they have.

        When those estimates are wildly off based off of bad methods of statistics deficits sore.

        • by AusIV (950840)
          How is this different from corporate accounting? Most businesses budget for the long term based on projected earnings. If those earnings don't come through for whatever reason, they end up with budget deficits.
          • by peragrin (659227)

            True but most corporations budget based on conservative estimates. The government predicts based off everyone paying exactly what they owe in taxes without deductions. Also a company can go bankrupt. a Country can also go bankrupt but it is very very messy.

        • by AHuxley (892839)
          They don't know how much money they really are working with only what they think they might be estimating they have.
          They do via the http://en.wikipedia.org/wiki/Comprehensive_annual_financial_report [wikipedia.org]
          Deficits "sore" in the short term public view to keep the public spooked and scared.
          As for MS they have always played loss leader as they embrace and extend their way into new markets.
          The problem for MS has always been one of image. Wealth creation at a personal level for its staff that is ever expandin
      • by camperslo (704715)

        Well look at it this way - they aren't fudging their balance sheets as bad as the US Government

        Shouldn't they have to count the government as a subsidiary?

    • 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:Yes (Score:4, Interesting)

      by HermMunster (972336) on Monday November 15, 2010 @02:33PM (#34233472)

      Microsoft wants to make their company seem like it is more profitable so that their share values go up, shareholder confidence returns, and they give the people the impression that they are still on top making the best product. Apple's been killing them in the area of revenue yet Microsoft had been ahead in profit. Now Apple has that crown too--even with obvious overhead of paying for the bill of materials (BOM). Microsoft seems to have problems coming up with new ideas and technology. Everyone knows they are basically stuck with Windows and Office, and that that'll last only so long.

      So, people distrust them and they have an issue with demonstrating they are still on top (which they are, just not the very top any longer). So, they cook the books to make it seem like they are doing better than they are with their new product.

      Does anyone here have any knowledge of products that Microsoft is developing that will satisfy the masses addiction to technology? Don't say WinMo7 because that's pretty much going to flop in my opinion. Anything else? I don't think they can sustain following up on other's products. They need something new and unique to them. A new radical version of Windows isn't it either. They are basically loosing on the embedded front, they are loosing on the smart phone market, they are loosing the tablet wars (which I don't think they can bring themselves out of).

    • Re:Yes (Score:5, Informative)

      by DaveGod (703167) on Monday November 15, 2010 @05:10PM (#34235642)

      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.

  • SOP? (Score:5, Insightful)

    by Nidi62 (1525137) on Monday November 15, 2010 @11:50AM (#34231236)
    I thought pretty much every publicly traded company did stuff like this?
    • by BSAtHome (455370)

      Wasn't it called "Lies; Damn Lies; and Corporate Accounting"?

      • by AnonymousClown (1788472) on Monday November 15, 2010 @12:02PM (#34231366)
        A manager was interviewing accountants for a job. The first accountant came in and the boss asked, "What's 2+2?"

        The first guy says, "4".

        The mgr thanked him for his time and dismissed him because he was too honest. Then he called the second guy in. "What's 2+2?", he asked again.

        "5" was the response.

        He was thanked and rejected because he was incompetent, The manager then asked the third accountant in. "What's 2+2?"

        The third accountant answered, "What do you want it to be?"

        He was hired on the spot.

        • by arivanov (12034)

          You are not quoting it right.

          First of all, it is not an accountant interview, it is the interview for the Chief Economist of Romanian Socialist Republic.

          Q: How much is 2+2.

          A: That depends, if you have to give - 3, if you have to take - 5.

          And he was not hired on the spot. The person to be hired was the nephew of Tovarish Cheushesku.

    • Re:SOP? (Score:5, Informative)

      by Chrisq (894406) on Monday November 15, 2010 @11:54AM (#34231290)

      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.

  • the truth! (Score:2, Funny)

    by cindyann (1916572)

    Since I'm a shareholder -- by virtue of mutual fund shares in my 401k and IRA accounts -- I want to know the truth.

    • Re: (Score:2, Funny)

      by Ben4jammin (1233084)
      Yea well good luck with that
    • Re:the truth! (Score:5, Insightful)

      by AdmiralXyz (1378985) on Monday November 15, 2010 @12:01PM (#34231354)
      But see, that's the beauty of corporate accounting. They never actually lie, it's all a matter of classifying revenue sources and sinks in brain-twisting ways that are technically accurate, even though from a bird's-eye view they give a completely mistaken impression of what's going on.

      And this isn't consigned to Microsoft, like an above commenter said, every Fortune 500 company has done it to varying extents. It's difficult to make illegal, too, because there's no one technique used (seems to be as much an art as it is a science, finding loopholes that aren't closed); so it's impossible to write a law that's general enough to stop the practice yet still enforceable.
      • by mspohr (589790)
        Accountants are good at this. When I had a (small, privately owned) company, my accountant used to ask me "What number do you want it to be?"
      • Re:the truth! (Score:5, Interesting)

        by UnknowingFool (672806) on Monday November 15, 2010 @12:18PM (#34231534)

        Interesting quote:

        The spokesperson said some of the changes were the result of embedded systems products being moved from EDD to Server & Tools and Mac Office's move from EDD to the Business unit after Bach left.

        For many years, Mac Office revenue was counted towards Entertainment and Device Division. I've always thought that was rather strange that it wasn't part of the Microsoft Business Division where it belonged. MS might have organized revenue based on the executive in charge which is normal. But also it could be that MS was trying to soften the massive losses of the Xbox first seven years.

        • by Kaenneth (82978)

          I think it's more like if that hardware isn't a standard X86 box running Windows, shove it to the guys that deal with weird hardware; like the talking barneys, brown music players, and Macs.

          Anyway, XBox runs some form of the Windows API, and Surafce runs on Vista; so I'm sure if they were third party companies they would be buying Windows licences... so why account for it as 'free' to the Windows division?

      • by h00manist (800926)

        But see, that's the beauty of corporate accounting. They never actually lie,.

        Enron was the master of it. Every company does it. Capitalists are out to kill capitalism. In my view, they will succeed.

      • Actually it goes a lot further than Fortune 500 companies. It is all USA companies, large or small.

        Anyone who has been successful in running their own business can tell you that the Federal Income Tax law is written in such a way that it pretty much requires a business to use accounting procedures that are not intuitively obvious to the outsider. If you don't do so, you will not be in business for very long.

        Consider that a common way for a USA start-up to fail is to show too much profit too early in the

    • Re: (Score:3, Insightful)

      by maxume (22995)

      The Information Week story is quoting from an SEC filing that Microsoft made. A filing Microsoft knows is public. So Information Week didn't exactly bust anything open here, and you just have to decide if you care about Microsoft's results on a segment by segment basis, or if you are happy owning the company in general.

    • by mcgrew (92797) *

      To misquote Jck Nicholson from A Few Good Men [wikipedia.org], "You're a shareholder. You can't handle the truth!"

    • by rmcd (53236) * on Monday November 15, 2010 @12:33PM (#34231684)

      Obvious retort: You can't handle the truth.

      This brilliant parody has been floating around for quite a while, author unknown (I found it at http://www.trinity.edu/rjensen/fraudenron.htm )

              A take-off from the movies "A Few Good Men" (Some phrases are in the original script and some are altered.)

              Tom Cruise: "Did you order the shredding?"

              Jack Nicholson: "You want answers?"

              Tom Cruise: "I think I'm entitled."

              Jack Nicholson: "You want answers!!"

              Tom Cruise: "I want the truth!"

              Jack Nicholson: "You can't handle the truth!"

              Jack Nicholson: "Son, we live in a world that has financial statements. And those financial statements have to be audited by men with calculators. Who's gonna do it? You? You, Dept. of Justice? I have a greater responsibility than you can possibly fathom. You weep for Enron and you curse Andersen. You have that luxury. You have the luxury of not knowing what I know: that Enron's death, while tragic, probably saved investors. And my existence, while grotesque and incomprehensible to you, saves investors. You don't want the truth. Because deep down, in places you don't talk about at parties, you want me on that audit. You need me on that audit! We use words like materiality, risk-based, special purpose entity...we use these words as the backbone to a life spent auditing something. You use 'em as a punchline. I have neither the time nor the inclination to explain myself to a man who rises and sleeps under the blanket of the very assurance I provide, then questions the manner in which I provide it. I'd prefer you just said thank you and went on your way. Otherwise, I suggest you pick up a pencil and start ticking. Either way, I don't give a damn what you think you're entitled to!!"

              Tom Cruise: "Did you order the shredding???"

              Jack Nicholson: "You're damn right I did!"

    • by slick7 (1703596)

      Since I'm a shareholder -- by virtue of mutual fund shares in my 401k and IRA accounts -- I want to know the truth.

      Just think about it.Vapor ware => Vapor sales, ergo, 401k and IRA => Vapor.

  • When a company suddenly starts moving the numbers around from one box to another, the question is always why? Could it be that the pressures from the BOD is getting tougher on people at the top?
    • Re:Desperate CEO? (Score:4, Interesting)

      by Locutus (9039) on Monday November 15, 2010 @12:04PM (#34231394)
      they have probably been doing this for years so I don't think it shows anything about the CEO's mental condition. If I recall correctly, one time they cut their R&D by 50%(something around $3billion) and amazingly almost every division turned in either a small profit or far less than the typical $250 million in losses they usually show. The following year they were all back to their usual hundreds of millions in losses.

      I just don't think this is new for them, just easier to notice.

      LoB
    • Yet people still didn't figure there was anything interesting about Ballmer selling off $1.3B worth of MS stock with plans for a total $2B [slashdot.org]. I'm telling you, there's more to it than tax prep. You don't after something like 6 years make your first sell off of MS stock in excess of 1/8 of your total holdings for tax reasons. There's some trouble going on and they're having a hard time digging themselves out. Win Vista was the first real sign, now we're seeing even more. There was a bit too much complacenc
  • Not as hideously corrupt or confusing as you might imagine:

    The spokesperson said some of the changes were the result of embedded systems products being moved from EDD to Server & Tools

    Isn't it all basically shuffling deck chairs on the Titanic anyway?

    • by gman003 (1693318) on Monday November 15, 2010 @11:58AM (#34231336)
      I'm hoping it's shuffling deck chairs on the Hindenberg - it will be more fun to watch.
      • by Toe, The (545098) on Monday November 15, 2010 @12:03PM (#34231376)

        I think it's turning out more like shuffling governors in the Ottoman or British Empires. A slow, gradual, slightly-pathetic decline as one setback overshadows another.

        • Re: (Score:3, Funny)

          by bennomatic (691188)
          Something about this imagery makes me LOL. Of course, I think of an ottoman going with my couch, not with a deck chair.
      • by LWATCDR (28044)

        umm.. I doubt that Hindenburg had deck chairs.
        It's shuffling deck chairs on the Titanic.

        Thank you from the literal net.

        • by idontgno (624372)

          I am quite sure Hindenburg had deck chairs. She had decks. She had chairs, and unless they were also inflated with hydrogen or bolted to walls they were clearly resting on the decks.

          Deck chairs. QED.

          "You're welcome" from the hyper-literal net.

          • by LWATCDR (28044)

            But the amount of time that the disaster took was so short that one didn't have time to do much shuffling at all. Also deck chairs are specific type of chair typically found on a ship and not just a generic chair on a deck. So it is still a broken metaphor please correct and use Titanic.

  • by falldeaf (968657) <.falldeaf. .at. .gmail.com.> on Monday November 15, 2010 @11:55AM (#34231304) Homepage
    I always mentally put these parts of the slashdot poll disclaimer in front of sales figures released by *any* company: "This whole thing is wildly innacurate ... If you're using these numbers to do anything important, you're insane."
    • by ByOhTek (1181381) on Monday November 15, 2010 @12:01PM (#34231356) Journal

      maybe, but how many companies have "Cowboy Neil" in their sales figures?

    • by dkleinsc (563838) on Monday November 15, 2010 @12:12PM (#34231456) Homepage

      Except of course that people are using these numbers to do something important.

      And this isn't just an idle problem: There have been colleges, pension funds, charitable foundations, and retirees crippled financially for decades because they looked at companies like Enron which were generating good consistent returns and decided that it was a good investment. This stuff does real damage to people, and the SEC simply doesn't have the resources to stop it.

      • Re: (Score:3, Insightful)

        And when the company does finally collapse, the people who were responsible for the creative accounting are long gone doing the same thing to another company.

        I tend to believe in the power of capitalism. But what I've seen lately is not just capitalism...it's pure greed. It's an economy run by narcissists who care of nothing else but their own personal pocketbooks. The company, the workers, the investors....it means nothing to them other than a means to an end. And we worship these people. And on
      • by abigsmurf (919188)
        These charitable trusts and funds would be just as hurt from investors panicking because what are actually pretty good figures for a company are buried by "FLAGSHIP PRODUCT MAKES MASSIVE LOSS. IS GLOBOCOM DOOMED?" headlines.
      • ... the SEC simply doesn't have the resources to stop it.

        Well, we can't have that ol' debbil "Big Gov'ment" steppin' all over the mystical, all-knowing, self-correcting, super-duper Free Market, now can we?

      • Re: (Score:3, Interesting)

        by cbhacking (979169)

        Enron is a completely different case. They were actually lying about their financial status. MS did in fact earn as much money as their reports say, and did have as many expenses. They just decided that, for reporting purposes, it looks better if they attribute a greater share of that profit to sales of Windows and Office rather than sales of Xboxes. Nobody is going to suddenly discover that MS is actually bankrupt and has been lying in their statements; at worst they might learn, in surprise, that enternta

  • by digitaldc (879047) * on Monday November 15, 2010 @12:05PM (#34231400)
    Actual sales versus paper sales...Microsoft is a huge profitable corporation so WHO CARES?
  • by TheRaven64 (641858) on Monday November 15, 2010 @12:05PM (#34231404) Journal
    Am I the only person who hates these allegation-disguised-as-a-question headlines? Please can we stop posting them? If you're going to make an allegation, make an allegation, don't try to pretend that you're asking the audience for their opinions. If you can't back them up, don't make the allegations, and if you can then don't hide behind weasel words in the headline.
  • Or is that just to say that the XBox has been hiding it's losses for a while now.
  • The only way to combat monopolies is either government legislation, or strong, close coordination among multiple parties who share an opinion. No more-powerful-entity (government) combat, no public coordination, so the emperor's elite guard still holds the fort. Microsoft has created for itself plenty of enemies, but nobody seems to be able to agree on doing anything effective. I can understand a million independent programmers having trouble agreeing, but I really don't understand how or why Apple, Orac
  • by jamesl (106902) on Monday November 15, 2010 @12:42PM (#34231782)

    InformationWeek speculates that ...

    Another word for "speculate" is "guess." A news organization should do neither.

  • by bdsesq (515351) on Monday November 15, 2010 @12:45PM (#34231816)

    So the company lies/misstates/whatever to make the core businesses look better and prop up the stock.
    And the, by some coincidence, monkey boy sells a billion or two of stock.

    Move along. Nothing to see here.........

  • When will people realize that corporate commerce is based on deceit. Who the hell is surprised that MS is cooking the books?

  • I am not exactly sure of the point of this article. IMHO financial accounting is an art and it is more about company appearance and image than concise financial reporting. IRS and accounting rules allow companies to manipulate the data to "hide" details that would otherwise disclose details about proprietary internal operations. If you look closely, you can usually find accounting trickery. This does not make the company "evil" or dishonest, it just allows them to both present honest financial information t

  • Of course the numbers are fake. Every computer sold today with XP on it counts as a Windows 7 sale, the "downgrade" is a BTO option.

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