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Microsoft reshuffles into 3 businesses for financial reporting

Gregg Keizer | Oct. 1, 2015
Will make it easier to mask hardware's hard road to profit, says analyst.

satya nadella
Microsoft CEO Satya Nadella 

Microsoft last Tuesday changed how it will report its financial performance, reducing the number of operating divisions to three, in an effort to align with CEO Satya Nadella's emphasis on the cloud and productivity platforms, and opportunities to reap revenue from customers after they've moved to Windows 10.

The three operating segments -- Intelligent Cloud, Productivity and Business Processes and More Personal Computing -- replace six earlier divisions, which were roughly organized on a consumer versus commercial basis.

Microsoft's previous financial reporting had been in place for just two years. Then-CEO Steve Ballmer reconfigured both the company and its financial reporting.

microsofts new reporting segments1
Microsoft broke apart its six reporting divisions -- which had been organized in a consumer-versus-commercial fashion -- then mixed and mashed the components into three new businesses. Credit: Microsoft

The changes will begin immediately, said Chris Suh, the general manager of investor relations, in a conference call with Wall Street analysts. The next earnings statement, slated for an Oct. 22 release, will rely on the new structure, although analysts will also get the results in the older format for comparison.

Intelligent Cloud will be composed of the Windows server licensing business, enterprise services and Microsoft's Azure cloud platform. Productivity and Business Processes, meanwhile, will be primarily the Office franchise -- both consumer and commercial, both perpetual licensing as well as Office 365 -- along with the Dynamics CRM (customer relationship management) portfolio. More Personal Computing will include Windows, Bing search revenue, and all of Microsoft's own hardware, from Surface and smartphones to Xbox.

While the mix-and-mash of the old into the new may be confusing to anyone not delving into Microsoft's numbers on a regular basis, Suh and Frank Brod -- the company's chief accounting officer, who was also on today's call -- touted it as both more in line with Nadella's pivot toward mobile, cloud and platforms, and as more transparent.

It will also more clearly show the company's ambitions, said Brod, who cited More Personal Computing's bundling of both upfront Windows licensing fees and after-sale monetization opportunities, like ads served by Bing.

Microsoft has been adamant that it will be able to shift emphasis from making money selling software -- Windows in particular -- to selling services to those running the OS. That thinking, for example, drove the decision to give away free upgrades to Windows 10.

Some information that analysts used to build their forecasting models -- and which reporters, including those at Computerworld, have relied on to highlight the company's successes and failures -- will disappear under the new format.


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