Microsoft’s largest division isn’t Windows or Office anymore. It’s “Commercial Licensing” — with more than $39 billion in revenue last fiscal year, representing more than half of the company’s overall business.
That’s one example of the mental adjustment that investors, analysts and Microsoft watchers will need to make as the company debuts its new financial reporting structure this afternoon. The new segments are a result of the “One Microsoft” reorganization, which aims to group Microsoft by functions rather than products.
Microsoft, which built its business by focusing on software, is trying to transform itself as a “devices and services” company, under the vision laid out by Microsoft CEO Steve Ballmer prior to announcing his retirement plan.
The changes will provide more detail on how Microsoft’s business breaks down between hardware, software, commercial and consumer segments. The new reporting segments make it more difficult to tell how individual products are doing, although much will depend on any additional information the company provides. For example, Microsoft has said it will disclose revenue for the Surface product line starting today.
We’ll see five segments, in two groups. Here’s what they’ll look like:
Devices and Consumer
1) Hardware: Surface, Xbox and Xbox Live, and other hardware
2) Licensing: Windows OEM, Windows Phone, Office Consumer, IP Licensing
3) Other: Bing & MSN, Office 365 Home Premium, 1st-Party Video Games
Commercial
4) Licensing: Windows Enterprise, Server Products, Office Business, Dynamics, Unified Communications
5) Other: Enterprise Services, Office 365, Windows Azure
In his recent annual letter to shareholders, Ballmer said the company’s plan is to make money by “leading with devices and enterprise services.”
Here’s how Microsoft’s revenue would have looked in fiscal 2012 and 2013 (ended June 30) if Microsoft had been reporting the results using this structure at the time.
And here’s a chart from the company showing gross margin for the five segments and operating income for the two segment groups for the same time periods.
Microsoft reports earnings after the stock market closes this afternoon. Analysts polled by Thomson Reuters expect quarterly revenue of 17.8 billion, up 11 percent, and earnings per share of 54 cents, up 2 percent.
Check back after 1 p.m. for coverage of Microsoft’s earnings report on GeekWire.
