Microsoft Shares Decline on Deferred Revenue
Microsoft is taking a little heat this morning after announcing that it will defer a portion of revenue from sales of Windows 7 to OEMs.
In short, the company announced a Windows Upgrade Offer, which provides consumers who buy a "qualifying" Windows 7 PC with the option to purchase a downloadable upgrade to Windows 8 Pro for an "estimated" price of $14.99.
The program, which begins this Saturday (June 2, 2012), will allow consumers who purchase up to five new Windows 7 PCs -- preinstalled with Windows 7 Home Basic, Home Premium, Professional, or Ultimate -- to take advantage of the upgrade. Windows 8 does not yet have a release date, but Microsoft is running the promotion through 2013. Thus, if you purchase a new PC by January 31, 2013, you should be good to go. But you must redeem your Windows 8 upgrade offer by February 28, 2013.
Microsoft (NASDAQ: MSFT) is directing consumers to WindowsUpgradeOffer.com for more information. Unlike previous upgrade programs, the Windows maker said that it will manage the redemption process itself, "including eligibility verification, payment, software delivery, and support."
Further, Microsoft said that in association with the Windows Upgrade Offer, the company will "defer revenue from eligible sales under the program to the earlier of the fulfillment date or the program's expiration date." As a result, the company expects to defer $450 million to $550 million in revenue during the fourth quarter of fiscal year 2012.
While Cross Research analyst Richard Williams told Reuters that this is "business as usual" for Microsoft, investors seem to disagree. The stock is down roughly 1.7% today, indicating that some shareholders don't want Microsoft to defer its revenue. But that's silly. Investors need to look at the big picture here. Microsoft didn't announce a loss or an expected decline. The company simply announced that it will hold off on recognizing half a billion dollars in revenue during the fourth quarter. That revenue will be recognized at a later date. Why is that so hard to swallow?
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