Microsoft’s numbers game makes Office 2007, Windows Vista launches look better than reality

Apple Store“Previously deferred revenue mitigates Microsoft’s seemingly blow-out fiscal 2007 third quarter earning results,” Joe Wilcox reports for Microsoft Watch. “Microsoft suffered untoward income declines during its second fiscal quarter as the company held back revenue related to upgrade guarantees for Office 2007 and Windows Vista.”

“Deferred revenue added $1.67 billion to Microsoft’s $14.4 billion for the third quarter. The deferral also added $1.14 billion in net income to the quarter’s $4.93 billion, or 12 cents to the 50 cents diluted earnings per share,” Wilcox reports. “Microsoft’s deferral, which the company took mainly for accounting reasons, has a side benefit of making the Office 2007 and Windows Vista launches look much larger than they really are, contributing to overall 32 percent year-over-year income growth and 72 percent diluted earning-per-share growth. However, while Microsoft realized deferred revenue in the quarter, the sales period is much longer. The deferral largely represents sales since October, when Microsoft started offering the Office 2007 and Vista coupons.”

“Without the deferral, revenue growth would have been 17 percent, which is in line with past performance,” Wilcox reports.

“Last month, Microsoft said it had shipped 20 million Vista licenses. Because the sales are into the channel, it could be another quarter before the full impact of Vista’s release can be assessed,” Wilcox reports. “But the disparity in PC shipments versus Windows OEMs hints at a larger volume of Vista licenses going into the channel than coming out. Microsoft forecast worldwide PC growth of 10 percent to 12 percent during the quarter. Windows OEM license shipments increased 20 percent, which is contrary to previous quarters where the typical pattern was lower OEM license growth than that of PC shipments. The situation suggests PC manufacturers and retailers may be sitting on a fair bit of stock, if OEM license purchases did exceed actual PC sales.”

Wilcox reports, “The extent of Vista’s impact remains uncertain, particularly considering 80 percent of revenue comes from OEM sales. Gartner has said that, so far, Vista’s release has had no perceptible impact on PC sales.”

Full article with many more details about Microsoft’s numbers here.

Related article:
The Register: Time for Ballmer to move on; modern-day Gerstner needed to cure all Microsoft’s ills – April 26, 2007

28 Comments

  1. RO – If it’s a legitimate DVD you shouldn’t need any special software, you can use Disk Utility to burn a copy or create a disk image. I never try to copy commercial video DVDs but I know of a software called MactheRipper that several people I know use.

  2. Depends on how you define ‘utopia’.

    I’ve been in computing utopia for 20 years. Of course, I’ve only owned Macs in that time. The grass never looked so green on the other side. Still doesn’t and probably won’t.

  3. @ .RO

    Right … Use OSX’s “Disk Utility” for burning “bootables”
    and for DVD Ripping theres This for free … or This shareware app with more features … Im sure there are others as well .. such as Roxio “Toast” & “Popcorn”

    You can find whatever you need at macupdate.com — versiontracker.com .. and Here

    So, now theres no excuse to keep using ‘Doze … is there ??

    Cheers !

  4. Microsoft uses plenty of accounting tricks, has done for years. That advertising budget and lawyering budget are quite flexible. Remember their keyboards and mice are really advertising, that’s why they are so good. Not only by putting the brand name between the customer and the computer but the customer gets their hands on something (literally) that works well and that’s good karma.

    They bought back $6.7Bn in shares last month so somewhat more than 2% of their stock price increase is due to that and not the sales BS.

  5. The full (negative) impact of Vista on PC sales will be seen more clearly about the time Mac OS X Leopard is released. How sweet!

    Microsoft’s “numbers game” will only make its future results look bad.

  6. I sell PCs (yah I know|)

    currently its about 1:1 for every machine with vista we sell we sell a machine with XP… word is definatly getting around to the laymen that vista has MORE than its share of problems.

  7. @.RO

    As said above, MactheRipper is the best for full extraction of commercial DVDs. Use Toast or Popcorn to compress full-length movies + extras onto a standard DVD.

    Of course, this is for archival purposes of movies you already own, right?

  8. Hey, Zune Tang! Welcome back – is that all you have to say?

    What about some clever retort to techguy or Toby Belch? I think they’ve pretty much hit the nail on the head with those comments. M$ seems to be faltering a bit, given the disparity indicated. (But then again, that whole notion of market share is a sham in and of itself.)

  9. …so Microsoft stuffed a banana down Vistas pants …compared to Microsofts history of deception, theft and business partner backstabbing it would be a 180º if this had not happened …besides, corruption has been good for Redmonds bottom line. Microsofts fortune cookie always says the same thing …corruption is a v-neck sweater ….filled with me.

  10. “How much longer can the man behind the curtain keep manipulating the numbers so as to maintain the fantasy that it’s all a utopia?”, said Wizard of Oz

    And how much longer can the man behind the curtain (i don’t say names, but someone here, whatever his name is, is guilty as sin) keep backdating options, which is a form of manipulating numbers

    And yes…throwing chairs is a number manipulating strategy, because we increase expenses, when there was no need too do so.

  11. Hey Techguy

    A few problems in your math.

    MS revenue (less deferral) = $14.4 – $1.67 = $12.73b
    MS net income (less deferral) = $4.93 – $1.14 = $3.79b
    MS Earnings per Share (less deferral) = $0.38

     revenue = $5.26b
     net income = $770m
     Earnings per Share = $0.87

    MS vs  revenue = 2.24 times
    MS vs  net income = 4.92 times

    MS makes much higher margins than  as margins on hardware are much lower than on software, hence the greater multiple on net income. But ’s revenue compared to MS is really impressive regardless.

    From a price to earnings perspective, investors like ! (MS=25.74, =36.20).

    More importantly, on an earnings per share basis,  is 236% better than MS. Wow!

    But the real story for investors is, the return on investment since Jan. 1, 2007 for MS would be .7% (3% annualized), and  18% (72% annualized).

    That’s my take.

  12. The situation suggests PC manufacturers and retailers may be sitting on a fair bit of stock, if OEM license purchases did exceed actual PC sales.

    As I’ve said here before, there was an era when certain automakers would count unowned vehicles shipped to dealer lots as “sales”. IIRC this practice is now illegal.

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