It's unclear exactly how the upgrade lifetimes and associated deferrals will affect customers: Microsoft has said nothing about what happens after the lifetime expires, including whether upgrades will be discontinued entirely, be available for a fee, or effectively be moot because a new edition will have superseded Windows 10.
On the accounting front, Microsoft will do some financial acrobatics to deal with the deferrals, recording revenue as it has in the past but then debiting the "Corporate and Other" reporting segment by pro-rated amounts over the lifespan of the license. For $300 of revenue over a three-year span of Windows 10 Pro, for instance, Microsoft will recognize $100 in Year 1, deferring the remaining for the second and third years, then booking $100 in each. At the end of the three years, the full $300 would have been recognized.
Microsoft's chief financial officer, Amy Hood has promised Wall Street that she would provide more information about the deferrals in a conference call at some point this year. "We'll ... share the exact details on lifecycles, how long the time will be, and the exact impact we expect," Hood said in May. She also pledged that the company would provide what she called a "comparability bridge" in its earnings statements, meaning that those statements would show last year's revenue as if Windows revenue had been deferred so that analysts will have an apples-to-apples comparison.
That additional information will probably be revealed in September or October, near the end of or after the close of the year's third quarter financials.
The related upgrade lifecycles, however, will likely be disclosed before or at the launch of Windows 10, scheduled for July 29, as customers -- notably businesses planning on adopting Windows 10 Pro -- will need to know what they're getting out of the upgrade offer.
Financially, the deferral will reduce Windows revenue on Microsoft's balance sheet, at least for a time, as the income once recognized during the quarter of sale will instead be split amongst numerous quarters.
In the first nine months of Microsoft's fiscal year 2015, it recorded about $9 billion for the affected Windows licenses, a pace of approximately $12 billion for 12 months. If the average deferral period is, say, three years, and Windows 10's revenue equals 2015's, Microsoft would thus record just a third, or $4 billion, in Year 1, or fiscal 2016. The remaining $8 billion would drop onto the books in Year 2 and Year 3, or in 2017 and 2018.
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