IBM & Microsoft Invented New Financial Reporting for Hiding the Reality

IBM Financial Invention
IBM has changed the way it reports its financial results. Starting with the first quarter, the company is breaking out its data analytics business — “cognitive solutions,” in IBM’s phrase — as a separately reported division, and adding another group that includes its cloud computing business. Hardware and software are no longer reported as individual businesses, but are blended into the other divisions.

IBM says it made the reporting change to more accurately reflect its recast collection of businesses, like Watson, which is part of its cognitive unit.

But analysts say the new reporting structure complicates the task of tracking some effects of IBM’s strategy. For example, it is not easy to tell if its overall software business — new products and old — is growing or shrinking.

Microsoft Financial Invention
Former Microsoft CEO Steve Ballmer has lambasted Microsoft for failing to disclose its profit margins and sales for its cloud business. The company’s largest individual shareholder isn’t thrilled with the way Microsoft reports its finances.

In the last annual shareholder meeting, Microsoft hasn’t disclosed profit margins or sales figures for either business. Ballmer says that revenue is a “key metric” and that if these businesses are important then the company “should report it.” Rather than reporting these figures, Microsoft has reported its annualized revenue run rate—a hypothetical value that describes what the company’s revenue would be if the current level of sales were sustained over the full year. Ballmer’s view of the run rate: “Bullshit. They should report the revenue, not the run rate.”

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