GAAP – Generally Accepted Accounting Principles mean getting the bottom line right. M$’s quarterly reports are awash with “reconciling amounts” that move around from quarter to quarter like snakes in the grass. Assuming they are not lying outright I thought it would be useful to look at profits, rather than revenue to judge the health of the dark empire. It includes the office suite and server stuff and gaming etc. but at least it complies with GAAP.


You be the judge. Is it flat with some sloshes or is it rising or is it falling? If the best they can do to pump up revenue is to charge OEMs in advance of shipments they are on borrowed time. The latest quarterly report shows a “pop” for revenue for “Client Division” (+11.4%) but operating income was down 6.7%. If Christmas + new release can’t beat last year they are in deep do-do.
“Revenue reconciling amounts for the three months ended December 31, 2012 includes: the recognition of $783 million of previously deferred revenue related to pre-sales of Windows 8 to OEMs and retailers before general availability (“Windows 8 Pre-Sales”); a net $161 million of revenue deferred related to the Windows Upgrade Offer; “
Figure that out. Sooner or later the OEMs will rebel. M$ blames them for the poor showing of “8” as if they should be grateful to be M$’s slaves. Retailers should be mad as Hell because they have “8” languishing on their shelves. It seems to me the only health in the Client Division are businesses upgrading to “7”. That will soon dry up. When the chickens come home to roost for the client division, who will need M$’s server or office suite offerings?

I think that happened by the middle of 2012 and it’s all downhill from here on. I think there are tons of unsold “8” PCs in the channel so next quarter should be grim for M$ and great for the rest of us. OEMs know they can make money shipping other than M$’s stuff. I recommend Debian GNU/Linux to cut ~$100 from their prices. The sooner they do that the more money they will make.

About Robert Pogson

I am a retired teacher in Canada. I taught in the subject areas where I have worked for almost forty years: maths, physics, chemistry and computers. I love hunting, fishing, picking berries and mushrooms, too.
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9 Responses to M$’s GAAP

  1. DrLoser says:

    For what it’s worth, Robert, I expect that the next quarter for the Windows division will be something like 10% better on revenue. But then again I am obviously privy to inside information.

  2. bw says:

    “You must be looking at a different report.”

    I am looking at page 34 of the document that you cite here. Your numbers seem to come from page 27. What reconciliation exists for these two exhibits is beyond me. I am not an accountant.

  3. bw wrote, “That is an increase of 24% in revenue and 14% in operating income over the same quarter in the previous year where the sales revenue was $4771 million and the operating income was $2880 million.”

    You must be looking at a different report.

    The latest one shows operaring income=“Windows Division

    Q4 2012 $ 2,671 Q4 2011 $ 2,854 “

    So, operating income is down even while revenue is up. Most of that revenue comes from OEMs so they must be mad as Hell that the stuff did not sell. Next quarter will be mostly deferred revenue as far as I can see because the OEMs are tired of sending money to M$.

  4. bw says:

    “Look at the client division”

    I don’t know why anyone should do that, but as near as I can tell, there isn’t any bad news there. I looked at


    and it shows that income for the Windows Division (is that what you mean by client division?) is some $5881 million and profits of $3296 million. That is an increase of 24% in revenue and 14% in operating income over the same quarter in the previous year where the sales revenue was $4771 million and the operating income was $2880 million.

    How do you see that as a sign of decay? I bet just about every company in the world would like to have numbers that are as good.

  5. DrLoser says:

    The client division is the one with the 11% increase, I believe. Revised down from 24% because of things like deferred sales, or in your words, “reconciliations.”

    Office tanked a bit, if that makes you feel any better about the future of Libre.

    What use is all the other stuff? To you, nothing, which is fair enough. But if you want to draw a graph with a straight-line fit over your last ten years of Microsoft value, it would apparently start at zero and end at zero, so I’m not sure what you’re getting at here.

    Me, I don’t care. Even though I work as a contractor for Microsoft. Precisely because I work as a contractor for Microsoft.

    Their revenue keeps going up, and that means I get at least a 10% bonus this year, possibly higher.

    Incidentally, that operating income thing? Operating income by definition includes costs (revenue does not). I suggest you factor the (idiotic, in my opinion) $1.5 billion Windows 8 advertising splurge into that.

  6. Well, how is the client division doing? Why are profits way down? How low will they go? If no one uses the client eventually what use is all that other stuff?

  7. DrLoser says:

    I dunno, Bob. As a simple contract programmer at Microsoft, a two year rise from $4.5 billion to $7 billion on a straight-line projection looks pretty good to me.

    But then, as a contract programmer, I neither care about the technology nor the market fundamentals.

    All I care about is that I got a 10% bonus last year, and things are looking good for a 20% bonus this year.

    It’s all good!

  8. bw wrote, “they are keeping ahead of the day of reconciliation.”

    Look at the client division. Also Apple. They are just holding still while Samsung and Google continue to have good growth. What is M$ going to do in a downturn? They own the present slowdown in personal computers.

    Beside inventory accumulating in the channels they are earning bad will. When the cash-cow was flowing OEMs and retailers could accept tiny margins. The downturn in PCs breaks M$’s hold on the world. The day of reckoning was the release of “8”.

  9. bw says:

    “You be the judge”

    Why? Microsoft will sink or swim or stumble or march on into the future with no help or hindrance from me or you. Based on the graph you display, though, it looks like they are getting more and more profitable as time goes on. Maybe it is a trick, but they are keeping ahead of the day of reconciliation.

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