Will Microsoft ever slow down?
By Mary Jo Foley, Sm@rt Reseller
July 22, 1999 9:58 AM PT
zdnet.com
Even the most cynical Microsoft watcher can't help but be impressed by Microsoft's Q4 and FY 1999 earnings announced earlier this week. But the $19.75 billion in revenues that Microsoft earned last year (a 29 percent increase over its 1997 revenues) was hardly the most interesting news the company made public.
Legal expenses are one of those tender spots it's easy to dig into. We all figured Microsoft was paying a pretty penny to fly legal, PR and other supporting cast members from Seattle to D.C., Bridgeport and Salt Lake City, but we didn't figure it could possibly cost the Redmonians $80 million. In one quarter.
But it's true. Microsoft took a one-time, $80 million nonrecurring charge in Q4 to cover legal fees. A Microsoft spokeswoman said this dollar amount didn't even include legal actions like piracy control; it was money spent on fighting the Department of Justice, Bristol Technology Inc. and Caldera Inc. antitrust suits in which Microsoft is embroiled. All I can say is those Microsoft attorneys and hangers-on more than made up for that courtroom cafeteria food.
In addition to confessing its legal costs, Microsoft also was forthcoming, albeit, confusingly so, about changes it is making in its general accounting practices. Did you catch that Microsoft is now considering the Windows lifecycle three years, rather than two, when computing unearned income? Hey -- I thought Microsoft a number of months back had committed to developing smaller, more rapidly developed operating system releases going forward. If so, what gives with this change?
For resellers, there was good and not-so-good news hidden in Microsoft's reduction in estimated channel returns of $250 million. Microsoft attributed the savings to the ongoing evolution of its distribution model from selling packaged retail products to selling organizational licenses and subscriptions. So, if you're a large account reseller (LAR) or other reseller who already has moved to selling licenses instead of boxes, you're in good shape. If you're not, it's time to get the lead out.
But Microsoft added that the $250 in savings also reflects the start of a change in the way it delivers products through multi-tiered distribution. Earlier this year, the company announced it was going to distribute some products directly to a handful of selected retailers, bypassing the traditional distributors and resellers. That change didn't sit well with some channel players. But did you know that Microsoft also is also shipping "other selected products…straight to customers?" Which ones, we aren't sure. But that was another interesting little nugget hidden amidst the numbers.
The rest of Microsoft's earnings for the quarter and year were fairly standard. OEM royalties continue to go through the roof -- a fact Microsoft attributes to higher PC shipments and a greater adoption rate of NT Workstation and Server, as opposed to higher prices Microsoft is charging per copy sold of Windows and/or NT. How much more did system vendors pay? OEM revenue in fiscal 1999 rose to $6.40 billion, up 36 percent over fiscal 1998.
How long can Microsoft keep up such astronomical growth rates? Every year, officials predict slowing growth that never seems to materialize. Do you see anything on the horizon that really might slow the seemingly unstoppable software giant? Talk back below and let me know.
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