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Microsoft Revenue Up, Tries to Hook Third World
rocketjam writes "Microsoft reported record revenue for the last quarter Thursday due to increased sales of personal computers. Analysts were impressed with the company's overall performance, however they expressed concern about the continuing drop in unearned revenue, reflecting Microsoft's difficulty in signing up customers for long-term, sustainable business contracts. The $400 million drop in unearned revenue was less than the drop in the last quarter but still exceeded many analyst's expectations. The company's continuing problem in gaining long-term contracts is generally attributed to growing security concerns among customers and company's unwillingness to go along with Microsoft's 'Software Assurance' upgrade subscription plan." Also in the news: Microsoft is donating a pile of software to the United Nations -- retail value, $1 billion; wholesale value, maybe $1 million or so -- attempting to hook the Third World on Microsoft software.
What they're talking about it unearned, they mean contracted or obligated but unpaid. Like if you buy something on a lease and don't have to pay for 90 days or better yet sign a contract but you don't take deliverables until 5 months into the contract. Simple GAAP rules. -Scott PS. Sorry 'bout being off topic.
For those of you who are not accountants:
Unearned revenue is actually not a P&L item. It is a liability on a companies Balance Sheet. If I prepay for a service the company has to recognize that revenue over the life of the service. So if I pay for a years worth of service from Microsoft for $12,000 they can recognize $1000 each month as revenue and reduce the liability by $1000 until the 12 months are up and the $12,000 has entirely hit the P&L.
The decrease in unearned revenue means that people aren't locking themselves into Microsoft but it doesn't reflect at all on what Microsofts future revenue will be. If anything companies that do end up sticking with Microsoft may pay more in the long run by not taking advantage of prepayment discounts.
And yes - I am CPA.
I agree that this thread is relatively venom-laded, but I think the 1000-1 markup is 'valid' from a manufacturing perspective.
Several years ago (1995ish?), Microsoft Canada closed its retail distribution centre here in Mississauga, to concentrate operations in the US. So Canadian product is shipped north. No big deal. But what was interesting was when they closed the warehouse, it was more cost effective for them to destroy the software than to redistribute. The software packaing itself had very minimal value, compared to the intellectual property inside.
I've always remembered this example... when it comes to intellectual property, its value is very subjective -- especially to the eyes of the owner.
John Maynard Keynes: "When the facts change, I change my mind. What do you do?"
from the article:
Look here for previous "charitable donations" that were actually marketing trojan horses that ended up being too expensive for the recipient..
In this particular context, it would include people who have signed up for Microsoft "software subscription" program. Declining unearned revenues mean that there aren't as many people signing up for their subscriptions as they'd hoped.
No. IANAA, but unearned revenue is essentially revenue you expect in the future (ie: expected incoming that won't occur in the current fiscal quarter).
What this shows is that Microsoft's future potential earnings are in jeopardy due to businesses being slow to sign up for the "Software Assurance" subscription plan.
Michael didn't even rtfa.
Friday it would pump $1 billion of cash and software into a computer training program it has set up with the United Nations
I don't know the full extent of MS's "evil empire", but i'm pretty sure they can't manufacture cash.
costs to manufacture this stuff. The IRS has already ruled you can't deduct the retail. Normally, this donation would only be worth about 10% of retail, considering MS says it has about a 90% margin.
However, this is being given to the UN, and different rules may apply. Congress may let them deduct retail.
How much does Microsoft get to declare as a tax deduction when it donates software?
Please see the first section, "What is fair market value?" at this IRS online publication: http://www.irs.gov/pub/irs-pdf/p561.pdf
The relevant sentence: "Fair market value (FMV)is the price that property would sell for on the open market." In other words, regular retail price.
Not really. When MS donates 100 000 licenses it really donates a piece of paper and a few CDs, those can be easily stored in Bill Gate's desk.
Shipping the product costs money.
See above.
Development costs money.
Development has cost the same no matter if MS donates licenses or not.
This Reuters story in the Toronto Star puts a different spin on the numbers. I assume that they're both using the same numbers?
One line blog. I hear that they're called Twitters now.
It would appear that our parent post has been hidden and mine reparented :-)
Before anyone thinks I'm mad, I was replying to someone saying he couldn't conceive of how donating something could be harmful. Hence my bringing up Nestle as an example. From the look of things, moderators agree with my surprise at the parent poster's belief.
Greg
(Inside a nuclear plant)
Aaaarrrggh! Run! The canary has mutated!
I happen to know about Nestle's wrong doings very well. My mum was a member of the Nursing Mothers Association of Australia (now the Australian Breastfeeding Association) and was local leader for a little while. So I grew up around a lot of this stuff :P
I found two pages with some information: THE NESTLE "COVER UP" IN AUSTRALIA and CORPORATE SCUMBAG: Nestle demands millions from famine-stricken country.
IIRC, the "first" problem was that poverty caused the mothers to stretch the baby formula as far as they could. This left the infants severely under-nourished. You're right about the second problem: very poor sanitation in many areas meant that the water used was often contanimated with raw sewerage. The people didn't know to boil the water because of poor education and couldn't even read the instructions on the can, which would have told them to do so.
It looks like you've already gotten some knee-jerk responses from MS fanboys, so I'll make the analogy (as I see it) clear:
1:- The mothers were advised by docters who were on the take from Nestle, and encouraged by advertising to be "modern" like the west. The doctors often handed the mother their first can of infant formula free, "donated" by Nestle.
- With this "donated" software, these third-world countries desire to be "modern", just like the west. They will probably be "advised" by MS or others with an interest. This first batch of MS software is donated but who says it will be free in the future?
2:- The mothers almost always had to water down the formula to make it last longer on their meager earnings. The water was also contaminated with raw sewerage, resulting in very sick infants and many deaths.
- I'm sure these countries will try to also stretch this donated software as far as they can. There will be unauthorized copying and MS will no doubt crack down on "piracy" in the future. We've in fact seen MS do this many times already. It's almost a given.
3:You are incorrect.
MS would be developing these bugfixes and developing the software whether they gave these million copies away or not.
MS projects revenue for a product. The "supply is infinite" argument earlier in the thread is a fallacy. The first copy could be seen as bearing the fixed costs of development (reproduction costs are low, but this is also true of railways - laying the track is a large cost which the cost of running a train on is not, also toll roads, also airplane development costs, infact almost every product bears huge fixed costs and relatively low replication costs). However seeing the first copy as bearing the fixed costs is a fallacy, as MS doesn't project demand in singular units but in bulk. The fixed costs of development are based on mass replication, just like Boeing, just like GM.
MS would not be developing these bugfixes and developing the software whether they gave these million copies away or not as you are mixing two points. MS would develop these fixes only where the cost involved matched the demand of them and MS products (and priced into the future demand) in the MS revenue model with a certain level of significance.
The point!
Of course this is somewhat beside the original point that MS was donating something. Such donations are tax deductable (though $1bn is surprisingly large MS and Bill Gates seem surprisingly benovenant for megalomaniacs). Though I doubt the UN were able to pay full-whack for this, in which case MS are engaging in discrimatory pricing (pay nothing now, get locked in to an MS-centric IT system and pay later, a la this interesting article on The Register (here)).
Why 'michael' felt it necessary to append a flippant and flamebait comment (to a well meaning article) like the wholesale value was $million I don't know, if that was really the case let me set up a MS software wholesaler right now, I'll sell software to my MS software retail subsidiary and sell to the consumer for a 1000 times mark up. I am starting to see why he is so hated.
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FreeNET user? Comfortable with the adverse selection?