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11/12/2010
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Exclusive: Microsoft Altered Windows Sales Numbers

Internal bookkeeping change handed $259 million in additional revenue to Redmond's OS unit.

Microsoft's Windows sales have gotten a boost from the fact the company quietly added revenues previously assigned to other groups to its operating systems unit, a bit of accounting legerdemain that, along with other bookkeeping moves, helped the Windows group put up big numbers in the past quarter, according to an InformationWeek analysis of the software maker's SEC filings.

Image Slideshow: Windows 7 Revealed
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Slideshow: Windows 7 Revealed

Microsoft's latest quarterly report shows the company has bolstered revenues in its Windows, Server & Tools, and Office units in part by shifting money from other internal organizations--mostly the Entertainment and Devices Division, which sells the Xbox.

A Microsoft spokesperson denied any financial shenanigans, but would provide few other details.

Windows group sales alone may have benefited by as much as $259 million or more, just from the bookkeeping changes. Indeed, the Windows group, which includes the flagship Windows 7 OS, was the main beneficiary of the revisions, while the EDD unit was the biggest loser.

Microsoft's internal wealth redistribution is evident when the Q1 fiscal year 2011 report (which covers the calendar period from July 1 through Sept. 30, 2010) Microsoft filed with the SEC on Oct. 28, is compared to Microsoft's Q1 report for fiscal year 2010, which it filed Oct. 23, 2009.

The comparison shows that, in the more recent document, Microsoft added $259 million to its original tabulation of Windows group revenues for Q1 FY 2010—increasing the total by 6.5%, to $4.24 billion as opposed to the originally stated $3.98 billion.

Microsoft also added $114 million to the Q1 FY 2010 numbers originally stated for its Server & Tools unit, and it added $111 million to its Business Division, which is responsible for Office sales. EDD revenues for Q1 FY 2010, as revised, were $1.41 billion, down 25% compared to the $1.89 billion Microsoft first reported.

Microsoft did not restate total revenues for Q1 of fiscal 2010, which came in at $12.92 billion, nor is there anything to suggest the company's revisions violate any accounting rules.

A Microsoft spokesperson said the adjustments, also reflected in the most recent quarterly results, were related to an organizational shakeup, announced earlier this year, that saw the departure of longtime EDD chief Robbie Bach. The spokesperson said some of the changes were the result of embedded systems products being moved from EDD to Server & Tools and Mac Office's move from EDD to the Business unit after Bach left.

But the spokesperson declined to reveal how Microsoft's Windows unit gained $259 million in Q1 FY 2010 revenues from the shakeup.

The upshot: Microsoft's Windows group revenues for the past quarter would have been closer to $4.4 billion under its old system of tabulating sales, not the $4.7 billion actually reported, assuming sales from products added to the Windows group at least held steady year-over-year.

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