Microsoft Corporation (MSFT) Windows 8 Did Succeed, Financially Speaking

How much do you think the 100 million Windows 8 shipment press release is worth? Some outspoken critics have been giving a lot of grief over Microsoft Corporation’s (NASDAQ:MSFT) press release, with the strongest critic, Patrick Seitz from Investor Business Daily, stating:

Microsoft is crowing about reaching 100 million Windows 8 licenses sold in roughly the first six months of availability. But the numbers aren’t as rosy as Microsoft is making them out to be. That doesn’t mean that 100 million Windows 8 PCs have been sold and are in use. Microsoft counts a Windows sale whenever a PC manufacturer ships a new computer. So, a good number of those PCs are likely still in the sales channel. Also, many of those PCs sold to businesses were downgraded to Windows 7.

Here’s the fallacy of that logic–the author failed to mention how long a Windows PC remains in the distribution channel. While Microsoft Corporation’s (NASDAQ:MSFT)’s recognition of sales may be a problem, a bigger problem lies in the way this critic laid out his thesis.

Source: YCharts

The days in inventory outstanding formula measures the average amount of days it takes for a firm to sell inventory. The calculation is the average inventory/cost of goods sold. The reason this formula works is that it takes the total cost of inventory on an annualized basis and divides by the amount of inventory the firm has. It can accurately estimate the average amount of days it takes for a firm to clear out its inventory.

In the above figure, Best Buy Co., Inc. (NYSE:BBY) is able to sell its entire inventory within 51 days on average. Dell Inc. (NASDAQ:DELL) is able to sell its inventory in 11 days before having to re-stock, and Hewlett-Packard Company (NYSE:HPQ) is able to sell its inventory in 26.28 days, just under a month.
Implications for the PC industry

I believe Microsoft Corporation’s (NASDAQ:MSFT) has every right to be optimistic. Hewlett-Packard Company (NYSE:HPQ) and Dell Inc. (NASDAQ:DELL) saw no increase in the amount of inventory laying around, despite the Windows 8 launch, and even Best Buy was able to decrease the inventory levels, all while Microsoft was able to increase sales from its Windows segment by 23% year-over-year in the first quarter. Seasonal demand is the weakest in the first quarter of the year. Despite that, Microsoft Corporation’s (NASDAQ:MSFT) was able to post strong results from its Windows division in the weakest season of the year.  This implies that the demand for Windows 8 was strong, and while consumers may not believe it, perhaps the Windows 8 is a much needed success for the PC industry.