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