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Exclusive: Microsoft Altered Windows Sales Numbers

Internal bookkeeping change handed $259 million in additional revenue to Redmond's OS unit.

There's one clue as to where at least some of the Windows unit's gains came from. Microsoft previously allocated revenues from sales of its Surface interactive display kiosks to the EDD group.

But in the most recent 10Q, Surface is absent from the list of contributors to EDD revenues. In fact, Surface has vanished from Microsoft's quarterly earnings statement altogether.

Whether Surface sales were enough to account for $259 million in extra revenues had they been added to Windows is hard to say, since Microsoft never broke them out. When asked specifically, Microsoft's spokesperson declined to say which unit, if any, has absorbed Surface.

The revenues added to the Windows group are more noteworthy when seen in concert with one other significant accounting move Microsoft undertook in the past year.

The company deferred $1.5 billion in Windows sales revenue in Q1 FY 2010 as a result of an upgrade program. The program let consumers who purchased a Vista PC during that quarter move to Windows 7 for free when Windows 7 became available in October of calendar 2009.

Eliminating the effects of the deferral plan shows that the Windows group's year-over-year sales increase in the most recent quarter was nowhere near the 66% Microsoft reported last month.

By Microsoft's own admission in its 10Q filing of Oct. 28, Windows sales from the OEM channel, which account for 75% of all Windows sales, increased just 11% year-over-year when the deferral program is considered. Not bad, but it's pretty much in line with most estimates for overall PC market growth during the period, including Microsoft's own.

To boot, data from market watcher Net Applications shows Windows has actually lost more than 1% of market share since last December, though it still commands more than 91% of the PC OS market.

The bottom line: Microsoft's Windows business remains healthy, but it's not the high double-digit growth engine the company's numbers—barring a deeper examination--would seem to indicate at first glance.

And what happened to Surface?

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