Through a glass darkly: Microsoft's new financial reporting format

Analysts worry CIOs and enterprise IT leaders will struggle discerning the sales performance of specific products

By , IDG News Service |  IT Management

CIOs will have a harder time evaluating how well key Microsoft products are selling now that the company has restructured the way it breaks down its revenue streams, according to analysts.

The new reporting format, detailed last week, will make its debut next month when Microsoft issues its financial report for its first fiscal quarter, which ends today.

The company said that it will be easier for outsiders, in particular investors and Wall Street analysts, to grasp Microsoft's financial performance, especially after its corporate reorganization and new focus on hardware devices and cloud services.

But some see the changes as negative for enterprise IT decision makers, saying CIOs and IT managers will likely struggle making sense of the numbers.

"I think this makes it harder for IT pros to determine what's going on," said Michael Cherry, an analyst with Directions on Microsoft.

Being able to determine how well -- or not -- a product is selling is an important element CIOs use to decide whether to commit to it, and so they look at quarterly financial reports for that insight, he said.

"They want to make sure that a particular technology, platform or product will be around for a while," Cherry said.

The new reporting structure breaks Microsoft's business into two big revenue buckets -- Devices & Consumer and Commercial -- which is a misstep right out of the gate, according to IDC analyst Al Gillen.

It may make the distinction between consumer and enterprise sales clearer, but the new format adds little transparency otherwise, he said via email.

"Lumping all software products into two broad categories makes it difficult, if not impossible, to see how any individual software product is doing," Gillen said.

The analysts also question the way in which the two buckets were subdivided into five subcategories, saying strange bedfellows are grouped together. For example, the Hardware subcategory of Devices & Consumer groups the Xbox 360 console and accessories with the Surface tablets, PC accessories and video games.

A burning question right now is whether Microsoft's foray into making its own tablets is a viable long-term plan or whether the effort will be scrapped, since the first generation of Surfaces didn't sell well.

"If the Surface goes in there with Xboxes and mice and keyboards, will you be able to tell the [financial] health of Surface?" Cherry said.

The answer for the Surface and other individual products will vary from quarter to quarter and depend on how specific and granular Microsoft gets in its reports beyond the two main buckets and five subcategories, he added.

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