The Channel

Axed-ya Nadella swings blade through the forest of Microsoft again

Redmond announces second major financial reporting change in three years

By Neil McAllister in San Francisco


In Microsoft CEO Satya Nadella's latest move to dismantle the legacy of his predecessor, Steve Ballmer, the software giant has announced that it's changing its financial reporting structure ... again.

The last time Redmond reorganized how it reports its earnings to investors was in the summer of 2013. Ballmer would step aside for Nadella around half a year later.

In the last round of musical numbers, Microsoft kept its past model of having five reporting segments but gave them different names and shuffled around which businesses belonged in which silos.

This time, Nadella has chopped the number of segments down to three and tagged them with names that read like they were dreamed up by a self-help life coach.

First comes Productivity and Business Processes, which naturally enough includes Office, Office 365, and other software for businesses including Dynamics and Dynamics CRM Online.

Next is Intelligent Cloud, which gets a little murkier. It includes not just all the proceeds from the Azure cloud, but also Microsoft's data center products including Windows Server, SQL Server, System Center, and the company's enterprise services offerings.

Last, and coming in with the goofiest name of all, is the More Personal Computing segment. This includes all of Redmond's client-side stuff, such as Windows (desktop and mobile), Surface, phones, and Xbox consoles. But it also, oddly enough, includes Bing search.

In Monday's press release, Microsoft said it plans to start using the new reporting structure with its very next earnings report, which it will announce on October 22.

On first glance, this rejiggering does seem to have some things going for it. For example, in the previous reporting structure, revenues from Office 365 for consumers, Office 365 for businesses, on-premises Office for consumers, and Office purchased through Volume Licensing under four separate reporting categories. Under Nadella's structure they're all in one bucket.

Similarly, the Intelligent Cloud segment might not have the best name, but it does do a much better job of lumping together all of the stuff that business IT departments will want, including both cloud-based and on-premises software. In the old model, Azure and Bing were in the same segment but Azure and Microsoft's server software offerings were not.

So far, however, the new structure leaves some odds and ends unaccounted for that were included in Ballmer's old structure. For example, where will revenue from Xbox games – as opposed to the consoles – be reported? And how about Xbox Live subscriptions? What about the Visual Studio family of developer tools? What about Skype? What about online advertising and sales from Microsoft's various online stores?

Hopefully these and other questions will be answered in a conference call Microsoft plans to hold on Tuesday. You can tune in to that talk beginning at 0900 PT (1600 UTC, 1700 BST) at Redmond's investor relations page. ®

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