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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.
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.