Microsoft Q4 Earnings Seven Facts Likely to Be Spun

Microsoft Q4 Earnings Seven Facts Likely to Be Spun

Microsoft will announce its fiscal 2010 earnings Thursday afternoon, and the pressure is on Redmond to deliver big numbers now that PCs sales have jumped this year, Windows 7 is the "fastest selling OS ever" and Office 2010 is generally available.

The elephant in the room will be Apple's $15.7 billion revenues for Q3 2010 that blew past Wall Street estimates. This was a new quarterly revenue record for Jobs and company.
TRITON (TM) Securing the Borderless Enterprise: Download now

Tomorrow's earnings report will mark the end of Microsoft's 2010 fiscal year (which ended June 30). In preparation for how Microsoft's earnings will break down and what the brain trust in Redmond will focus on (and what it will try to conceal), analyst Matt Rosoff from independent research firm Directions on Microsoft MCTS Training outlined seven key themes to bear in mind regarding the state of Microsoft's business.

If the Money Makers Are Slipping, Trouble Lurks

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Microsoft's cash cows are, and always have been, the Windows division, the business division (which includes Office, Exchange and SharePoint) and the Server and Tools division (Windows Server, SQL Server etc). Windows and Office are the most profitable, with around 70 percent profit margins. If all these divisions are growing and profiting then Microsoft is in good health, writes Rosoff. If they are contracting in any way, that means trouble.

Other Segments Exist for Competitive Reasons, Not Revenue

Microsoft's Entertainment and Devices division, comprised of Xbox and mobile platforms, provides decent revenue - about 13 percent of Microsofts total last year - but very thin margins. The Online segment, mostly advertising from Bing and MSN, accounts for only about 5 percent of Microsofts revenue and has been bleeding money for the last few years. It will probably lose about $2 billion in fiscal year 2010.

[ For complete coverage on Microsoft's new Windows 7 operating system -- including hands-on reviews, video tutorials and advice on enterprise rollouts -- see CIO.com's Windows 7 Bible. ]

Do not focus on the finances of these segments, writes Rosoff, because they basically exist for competitive and strategic reasons, not revenue. Bing exists to curb Google's revenue growth, which would prevent Google from cutting into Microsoft's Office profits via Google Apps; Xbox gives Microsoft a consumer brand to compete with Sony and Apple; and the mobile business exists to stop competing smartphone platforms from cutting into sales of Windows on portable PCs.

Unearned Revenue Shows if Big Customers are Buying

"Unearned revenue" offers a good clue about Microsoft's financial health. Whenever enterprise customers like large companies and government agencies make annual payments on multi-year software licensing contracts, Microsoft doesn't book the revenue right away. It puts that money in a bucket called unearned revenue, and then staggers that money into earned (regular) revenue over the course of the year. Fluctuations in unearned revenue indicate how many customers are renewing these multi-year contracts, and how much software they're buying through them.

Microsoft will announce its fiscal 2010 earnings Thursday afternoon, and the pressure is on Redmond to deliver big numbers now that PCs sales have jumped this year, Windows 7 is the "fastest selling OS ever" and Office 2010 is generally available.

The elephant in the room will be Apple's $15.7 billion revenues for Q3 2010 that blew past Wall Street estimates. This was a new quarterly revenue record for Jobs and company.
TRITON (TM) Securing the Borderless Enterprise: Download now

Tomorrow's earnings report will mark the end of Microsoft's 2010 fiscal year (which ended June 30). In preparation for how Microsoft's earnings will break down and what the brain trust in Redmond will focus on (and what it will try to conceal), analyst Matt Rosoff from independent research firm Directions on Microsoft MCITP Certification outlined seven key themes to bear in mind regarding the state of Microsoft's business.

If the Money Makers Are Slipping, Trouble Lurks

Related Content

* Massive check-fraud botnet operation tied to Russia
* AT&T: We don't intend to stop Black Hat demo
* Automated software quality assurance really mattersBLOG
* Optimize VMware View VDI Deployments with F5WHITE PAPER
* This year's Defcon badge has a persistent display

* Google patches Chrome, sidesteps Windows kernel bug
* Open source Razorback project targets malware, zero-day exploits
* Twitter encounters more digital certificate problems
* A Green Architectural Strategy That Puts IT in the BlackWHITE PAPER
* Founder: Black Hat reflects a changing industry

View more related content

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Microsoft's cash cows are, and always have been, the Windows division, the business division (which includes Office, Exchange and SharePoint) and the Server and Tools division (Windows Server, SQL Server etc). Windows and Office are the most profitable, with around 70 percent profit margins. If all these divisions are growing and profiting then Microsoft is in good health, writes Rosoff. If they are contracting in any way, that means trouble.

Other Segments Exist for Competitive Reasons, Not Revenue

Microsoft's Entertainment and Devices division, comprised of Xbox and mobile platforms, provides decent revenue - about 13 percent of Microsofts total last year - but very thin margins. The Online segment, mostly advertising from Bing and MSN, accounts for only about 5 percent of Microsofts revenue and has been bleeding money for the last few years. It will probably lose about $2 billion in fiscal year 2010.

[ For complete coverage on Microsoft's new Windows 7 operating system -- including hands-on reviews, video tutorials and advice on enterprise rollouts -- see CIO.com's Windows 7 Bible. ]

Do not focus on the finances of these segments, writes Rosoff, because they basically exist for competitive and strategic reasons, not revenue. Bing exists to curb Google's revenue growth, which would prevent Google from cutting into Microsoft's Office profits via Google Apps; Xbox gives Microsoft a consumer brand to compete with Sony and Apple; and the mobile business exists to stop competing smartphone platforms from cutting into sales of Windows on portable PCs.

Unearned Revenue Shows if Big Customers are Buying

"Unearned revenue" offers a good clue about Microsoft's financial health. Whenever enterprise customers like large companies and government agencies make annual payments on multi-year software licensing contracts, Microsoft doesn't book the revenue right away. It puts that money in a bucket called unearned revenue, and then staggers that money into earned (regular) revenue over the course of the year. Fluctuations in unearned revenue indicate how many customers are renewing these multi-year contracts, and how much software they're buying through them.