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July 17, 2006

Changes in Microsoft’s financial reporting

Posted by David Hunter at 5:07 PM ET.

Last week, I posted a reminder that Microsoft was changing their financial reporting structure and now the details have been revealed:

Microsoft Corporation today announced upcoming changes in its financial reporting structure reflecting completion of previously announced organizational changes. Beginning in fiscal year 2007, the company will report its financial performance based on five operating segments: Client, Server and Tools, Online Services Group, Microsoft Business Division, and Microsoft Entertainment and Devices Division.

Today’s news further aligns the company around three operating divisions – Microsoft Platforms and Services Division, Microsoft Business Division, and Microsoft Entertainment and Devices Division – previously created to achieve greater agility in managing future growth and execute on Microsoft’s software-based services strategy.

The Microsoft Platforms and Services Division includes the operating segments of Client, Server and Tools, and the Online Services Group. The Online Services Group includes MSN® as well as Windows Live™. The company will continue to report results for each of these three segments, which is consistent with the way they are managed and reported within Microsoft.

The Microsoft Business Division includes the Information Worker and Microsoft Business Solutions businesses. These businesses have been merged and the financial results for these two businesses will be presented as one operating segment.

The Microsoft Entertainment and Devices Division includes the Home and Entertainment and Mobile and Embedded Devices businesses. These businesses have been merged and the financial results for these two businesses will be presented as one operating segment.

The company also previously announced the formation of the Unified Communications Group within the Microsoft Business Division, which includes the Exchange Server business. Financial results in fiscal year 2007 for the Exchange Server business, as well as certain client access licenses related to products residing in the Microsoft Business Division, will be included as part of the results in the Microsoft Business Division segment. Previously, the financial results for these products and licenses had been included in the Server and Tools segment.

The company will announce financial results for its fiscal fourth quarter on July 20, 2006 for the seven business segments under which the company operated in fiscal year 2006, and will provide fiscal year 2007 guidance under the new operating segment structure.

The good news here is that Client, Servers and Tools, and Online Services weren’t all mashed together. The bad news is that Office (Information Worker) will cover up whatever is happening in Microsoft Business Solutions. In Entertainment and Devices, the action is mostly in the Xbox (and maybe the upcoming Zune) anyhow, so the obfuscation of Mobile and Embedded could charitably be called a neutral. As for Exchange Server getting counted with Office and MBS, that was odd from the start. Well, at least we get a parting glance of the old seven segment breakout to shoo us on our way.

Update: Microsoft filed a form 8-K with the SEC restating the last few years results with the new categories and you can find it here. Below is how last quarter’s results look restated:

Revenue  

Three Months Ended
March 31

(millions) % change 2006 2005

Segments  
Client %7.5 $3,187 $2,964
Server and Tools 16.5 2,398 2,058
Online Services Group (3.4) 561 581
Microsoft Business Division 6.6 3,608 3,384
Entertainment and Devices 81.0 1,146 633


 



Total revenue %13.3 $10,900 $9,620
       
       

Operating Income / (Loss)
 

Three Months Ended
March 31

(millions) % change 2006 2005

Segments  
Client %6.0 $2,471 2,331
Server and Tools 44.9 746 515
Online Services Group (125.7) (26) 101
Microsoft Business Division 4.2 2,414 2,316
Entertainment and Devices - (422) (198)


 



Total Operating Income %16.8 $3,888 $3,329

If you compare with the previous 7 segment breakout, it is much as expected except that shifting Exchange server turned out to be a win-win: losing it lifted Servers and Tools and gaining it lifted the Microsoft Business Division (formerly Information Worker and MBS).



Filed under Argo, Exchange, Financial, General Business, MBS, Microsoft, Office, Servers, Xbox, Zune

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5 Responses to “Changes in Microsoft’s financial reporting”

  1. Microsoft 4Q06 earnings segment breakout -- Microsoft News Tracker Says:

    [...] Microsoft Business Solutions made it in to the black as it does occasionally and Mobile and Embedded shaved its loss a little over last year. These two segments will “disappear” from the reporting next year as we discussed earlier in the week. [...]

  2. Nadella replaces Burgum in Microsoft Business Solutions hot seat -- Microsoft News Tracker Says:

    [...] Finally, as alluded to in the quote above, Microsoft Business Solutions results are no longer broken out separately in Microsoft financial statements, so outsiders will never really know if it ever turns the corner. Filed under Executives, Steve Ballmer, MBS, Jeff Raikes, Microsoft, Doug Burgum, Satya Nadella   [Permalink] [TrackBack] [...]

  3. Microsoft 1Q FY07 earnings segment breakout -- Microsoft News Tracker Says:

    [...] Here’s a look at the breakout of Microsoft’s 1Q FY07 earnings report supplemented by information from the 10-Q filing to see what it says about the various component businesses. The full numbers are reproduced below following some brief commentary. This kind of look is now rather less enlightening than it used to be since Microsoft has started reporting results for its new 5 division arrangement instead of the previous 7 business segments. [...]

  4. Microsoft slips Dynamics NAV 5.1 to 2H2008 -- Microsoft News Tracker Says:

    [...] Following the link provides a list of the new 6.0 features (many of which were 5.1 features), but that’s the spoonful of sugar that helps the bitter medicine go down. The troubled state of the former Microsoft Business Systems division products seemed to slip beneath the radar after MBS got merged into Office (i.e. the Microsoft Business Division), but things don’t really seem to have improved.   Filed under MBS, Dynamics, Navision, Microsoft   [Permalink] [TrackBack] [...]

  5. Microsoft Dynamics AX 2009 now generally available | Microsoft News Tracker Says:

    [...] So the developers continue to beaver on supporting their existing customers and perhaps bagging a new one here and there, but the financial results, if they are in fact positive, are buried by Office with which Dynamics shares the Microsoft’s Business Division.   Filed under Acquisitions, MBS, Dynamics, Axapta, Microsoft   [Permalink] [TrackBack] [...]

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