Microsoft shifted money making Windows appear more profitable

Microsoft's boosted their Windows sales totals by quietly moving money it previously assigned to other groups within the organization to its operating systems division. This little white bookkeeping lie was used to boost sales numbers for Windows this past quarter. 

InformationWeek dug through Microsoft's latest quarterly report and found that money from the Entertainment and Devices division (EDD) which is responsible for the Xbox, Xbox 360, Zune, Windows Games, and Windows Mobile was moved out of their division and into the Windows, Server & Tools, and Office divisions. They believe that nearly $259 million was moved to boost numbers in the Windows division. 

According to the report: 

"The changes are 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"

While comparing the two they noticed that Microsoft had added $259 million, or 6.5%, to its original total boosting revenues to $4.24 billion from $3.98 billion. They also found that $114 million was moved into the Servers and Tools division as well as another $111 million to the Business division which is responsible for the production of Microsoft Office. 

A Microsoft spokesperson said that some of the accounting changes were due to a shakeup within the organization. After the departure of EDD chief Robbie Bach departments were restructured and parts of the EDD division were moved so the money had to be moved as well. The spokesperson wouldn't reveal what change led to the Windows division gaining $259 million. 

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I have a feeling this is more about making Windows 7 look more successful than it really is than anything else. XP is still the most popular OS, and the numbers for 7's sales are mostly because of new PC's coming with it installed, not selling the disks. Since you cannot buy a retail XP disk anymore they want to make it look like 7 is doing great when it is not. I will wait for XP2 myself I can't stand 7 and felt ripped off by Vista. I don't care about eye candy, I want something with a consumer friendly GUI and easily configurable and with integration like XP.

These little white lies have become so rampant that the global economy is on pins and needles as an end result of it. Have they stopped teaching philosophy in college? Forget teaching them the religious ethos, that too has been bankrupted decades, if not centuries ago.

I agree with the guy that said as long as they don't do that every quarter I doubt it would be an issue. But every politician and big company plays word games like this, *cough* Obama. */cough*.

eviltwigflipper said,
I agree with the guy that said as long as they don't do that every quarter I doubt it would be an issue. But every politician and big company plays word games like this, *cough* Obama. */cough*.

Ya, like when Obama took the costs of the wars and added it back into the budget instead of leaving it out of the spending/deficit numbers like Bush did. Oh wait, that would make your argument more like *cough* Bush. */cough*.

It kills me when people talk about the massive 'Obama' spending, and they quote figures about the budget that are NOW larger because of the expenses that Bush kept sweeping under the rug like the war costs.

And I should care... because why? This article seems like something a MacBoy would write to try to distract from the fact that Microsoft rocks.

Windows 7 is still wildly successful and I don't give a rat what Microsoft does with Microsoft's money. It's none of our business. All I care about is that Microsoft keeps making incredible products, a butt-load of money to keep them strong and their prices affordable.

Fox_Rox said,
And I should care... because why? This article seems like something a MacBoy would write to try to distract from the fact that Microsoft rocks.

Windows 7 is still wildly successful and I don't give a rat what Microsoft does with Microsoft's money. It's none of our business. All I care about is that Microsoft keeps making incredible products, a butt-load of money to keep them strong and their prices affordable.

"Windows 7 is still wildly successful"

That is what it was all about. They simply wanted to make Windows 7 sound like they had sold way more copies/licenses than they really had, just to sound good!!

cork1958 said,

"Windows 7 is still wildly successful"

That is what it was all about. They simply wanted to make Windows 7 sound like they had sold way more copies/licenses than they really had, just to sound good!!

Well, that's certainly the way it was spun in this article, but there is no real proof of that being the motivation. And, even if there was it would make no difference... none whatsoever. This is something businesses do all the time. It's not illegal and no less ethical than most of the commercials you see on television. If I have to choose to believe an unsubstantiated opinion of the person that wrote this story and presented it as something being newsworthy or the unidentified Microsoft spokesperson, I'll go with the spokesperson.

cork1958 said,

"Windows 7 is still wildly successful"

That is what it was all about. They simply wanted to make Windows 7 sound like they had sold way more copies/licenses than they really had, just to sound good!!

Um, except that Microsoft also releases the number of copies and licenses sold.

They don't hide this information like Apple does where you left to speculate to the number of units sold by the dollar amounts.

If the bottom line is accurate, why should any of us care how it's distributed across business divisions? This smells like a desperate attempt to make an issue over nothing.

Shock. Horror. Scandal.

smot said,
If the bottom line is accurate, why should any of us care how it's distributed across business divisions? This smells like a desperate attempt to make an issue over nothing.

Shock. Horror. Scandal.

Inverstors/stockholders make investment decisions based on a corporation's business practices. Actions like this can influence those decisions, especially if they're not immediately disclosed to the public. For your average consumer though, it makes absolutely no difference. They will continue to sell products just like before.

Dear Microsoft, Please combine your Windows and Xbox software/hardware. PC games would love to play your Xbox games and use the Kinect. It will increase your profit margins. The Xbox hardware is kind of lame compared to my all-powerful PC.

SpyderCanopus said,
The Xbox hardware is kind of lame compared to my all-powerful PC.

You can honestly only say this if your Video Card is DX11 capable, as not all the features of the XBox 360 GPU are implemented in DX10, and pre-DX11 GPUs are not capable of the same features that XBox developers have been using for many years.

(Also you can thank NVidia for DX10 not meeting the feature set of the XBox 360 GPU, as they fought MS about both WDDM and DX10 requirements, as their upcoming 8xxx series of GPUs were not powerful enough for the original DX10 designs that fully included all the DirectX enhancements used in the XBox 360.)

This just in, accountants move money around for tax purposes!
More at 11!

Wait, no, that can't be it. It must really truly be that Microsoft wanted to increase their 4bil profit to 4.24bil.... /facepalm

This was to avoid the impending tax increases that obama has coming in 2011 fiscal year.. you will see alot of companies doing this.. taking profits in fiscal year 2010 to avoid higher taxation.. so, it will appear by the end of the year that things are looking up .. until the tax increases hit and the bottom falls out... good luck everyone

rhianntp said,
This was to avoid the impending tax increases that obama has coming in 2011 fiscal year.. you will see alot of companies doing this.. taking profits in fiscal year 2010 to avoid higher taxation.. so, it will appear by the end of the year that things are looking up .. until the tax increases hit and the bottom falls out... good luck everyone

Obama tax increases? You need to fact check your comment a bit. There have been no proposed nor passed tax increases outside of Cigarettes and a few other items like that.

Is Microsoft selling Marlboros now?

Now I understand the CBS poll from last month where only 8% of the US population were aware that Obama lowered the taxes of 95% of the population.

The biggest tax decrease in history, was signed into law by Obama, go fact check it...

Maybe Jefferson was right about the uneducated electorate...

So in effect it was the entertainment division that really made more money. It's not like Windows need helping from the E&D division, bizarre.

I'm confused as to when Information Week becase a forensic accounting journal? My wife is in accounting, stuff gets moved around all the time, it's rarely as nefarious as this article tries to make it sound.

So the big secret has come out. Microsoft Kin was actually profitable they moved all the profit to Windows division to make Kin look bad.

seems like a rumor. those division might have got money for the service they provided to EDD.
even my company move money within departments...

Yes it does. If the biggest division in a company is losing money, as an investor, you make no longer want to invest as the company's primary business is declining.

neufuse said,
pretty much every company moves money around like this

I am not sure this is true or at least they are not supposed to as it affects comparitability between periods. Maybe they should have disclosed this on the financials.

bankajac said,

I am not sure this is true or at least they are not supposed to as it affects comparitability between periods. Maybe they should have disclosed this on the financials.


Of course companies aren't supposed to do this. Doesn't stop them from doing so anyway.

So they intentionally sabotaged the entertainment division to benefit the biggest division is what you're saying... or no?

That doesn't make too much sense.

BoyBoppins said,
So they intentionally sabotaged the entertainment division to benefit the biggest division is what you're saying... or no?

No. Microsoft had previously been sabotaging the *other* divisions to make Xbox look good. Now that Robbie Bach is gone, they're simply unraveling his Entertainment & Devices empire and moving products to divisions where they actually fit.

Previously, Mac Office was in E&D, even though Win Office was in the Business division. Mac Office is very profitable and often generated more profits than the entire E&D division put together -- because Xbox was churning out red ink.

Information Week was not able to figure out where the money came from for the Windows division. They discovered that Surface was gone from E&D, except that Surface probably doesn't make $259 million.

Actually, there's another product that's also not listed under E&D in the 10-Q that *could* account for $259 million -- Media Center. Last I heard, Media Center was still in E&D. However, Media Center is bundled into Windows, and they used to take an arbitrary percentage of Windows revenue and assign it to E&D to "pay" for Media Center. If they altered this percentage, they it would easily account for $259 million.

It's just because of a restructuring of the divisions. As long as it doesn't happen every quarter I don't see the problem.

Benjamin Rubenstein said,
Ummm... I don't think this should matter. Just don't do anything illegal, keep on making awesome products, and the world will be a better place. Seriously.

Agreed though they should have fully disclosed what was going on. With out that, they leave it open to assumptions which cause to many rumors.

I'm not really sure why they would need to do that -- in fact, I'd be more happy if I were a Microsoft investor to see the entertainment division making more money, since it has historically been Microsoft's least-generating division and had the potential for the most growth.

So, basically, I'd believe Microsoft's assertion that it was due to restructuring.