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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.
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.