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Microsoft delivers strong quarter on Windows 7, Office upgrade cycle

By | October 28, 2010, 1:30pm PDT

Summary: Microsoft’s first quarter handily topped expectations as the company continued to ride an upgrade cycle for Windows 7 and Office.

Microsoft’s first quarter handily topped expectations as the company continued to ride an upgrade cycle for Windows 7 and Office.

The company reported fiscal first quarter net income of $5.41 billion, or 62 cents a share, on revenue of $16.2 billion, up 25 percent from a year ago. The year-ago figure includes deferred revenue though so revenue growth was more like 13 percent. Wall Street was expecting earnings of 55 cents a share on revenue of $15.8 billion.

Nevertheless, the software giant reported a strong quarter across the board. Like most quarters, Microsoft rode its twin cash cows (right): Office and Windows. The Entertainment and Devices division also performed well courtesy of Xbox.

As for the outlook, Microsoft reiterated its operating expense targets.

The company sees the following for the fiscal second quarter:

  • Windows demand in line with PC growth after adjusting for the Windows 7 spike.
  • Server and tool multi-year licensing should grow high single digits.
  • The business division (Office) will grow in line with PC market. Multi-year licenses in the mid-to-high single digit range.
  • Online advertising revenue is projected to outperform the overall ad market.
  • Entertainment and device revenue will grow 30 percent in the second quarter and in the mid-20 percent range for fiscal 2011.


In a statement, the company said that it continued to ride the Windows 7 and Office upgrade cycles. Office 2010 revenue was up 15 percent in its first full quarter. Microsoft added that it continued “to see a healthy and sustaining business PC refresh cycle.”

Microsoft chief operating officer Kevin Turner also talked up demand for the company’s cloud services and new customer wins. Those efforts are too early, however, to be material.

By the numbers and other key points:

  • PC unit growth in the first quarter was 9 to 11 percent.
  • Microsoft said that Windows Azure had 40 percent sequential subscriber growth.
  • 70 percent of Business Productivity Online Services customers were new to Microsoft.
  • Xbox unit growth was up 38 percent in the quarter.
  • The online services unit delivered revenue growth of 8 percent in the first quarter compared to a year ago. The unit continues to lose money.

Among the key slides:

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Topics

Revenue, Microsoft Corp., Online Advertising Revenue, Microsoft Windows 7, Microsoft Windows, Operational Accounting, Microsoft Office, Operating Systems, Software, Finance, Office Suites, Larry Dignan

Larry Dignan is Editor in Chief of ZDNet and SmartPlanet as well as Editorial Director of ZDNet's sister site TechRepublic.

Disclosure

Larry Dignan

Larry Dignan has nothing to disclose. He doesn’t hold investments in the technology companies he covers.

Biography

Larry Dignan

Larry Dignan is Editor in Chief of ZDNet and SmartPlanet as well as Editorial Director of ZDNet's sister site TechRepublic. He was most recently Executive Editor of News and Blogs at ZDNet. Prior to that he was executive news editor at eWeek and news editor at Baseline. He also served as the East Coast news editor and finance editor at CNET News.com. Larry has covered the technology and financial services industry since 1995, publishing articles in WallStreetWeek.com, Inter@ctive Week, The New York Times, and Financial Planning magazine. He's a graduate of the Columbia School of Journalism and the University of Delaware.

For daily updates, follow Larry on Twitter.

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RE: Microsoft delivers strong quarter on Windows 7, Office upgrade cycle
Traxxion Updated - 31st Oct 2010
@Mister Spock
Nobody is forcing anyone to upgrade.

I am still using a HTC Blueangel mobile phone and to be honest it can do almost everything the iPhone can do, has a 4inch touchscreen, blah blah blah - although it is 8 years old. Guess what?? It runs Windows Mobile 2003SE. Yeah, the camera sucks, but then, so does the iPhone's camera 8 years on, so what have I missed - nothing.

Guess which OS I use mainly on my PC? Yep, Windows XP. Do I like Windows7? - yes I do. Can Windows 7 do anything that XP cannot - ummm... well, yes, but no nothing I really need right now. Do I have to upgrade? - nope, not yet, but I can if I wish.

So no, you are not FORCED to upgrade, you choose to upgrade.
View in thread
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Hold on a sec
rtk 28th Oct 2010
I thought MS was dead?

There's gonna be some bitter Apple/Linux trolls today.
0 Votes
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Get out the Pom, Poms, Cheerleaders your turn
daikon Updated - 28th Oct 2010
@rtk
MS is making money off there customers, and at what cost.
MS 20 Vulnerabilities that have not been patched:
http://www.zerodayinitiative.com/advisories/upcoming/

Why does it take over a year to fix something?

MS only concern is themselves and there shareholders.
Thats were that slogan comes it, Its my idea and I am a PC..


Hooay!
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RE: Microsoft delivers strong quarter on Windows 7, Office upgrade cycle
mdemuth 28th Oct 2010
@Linux Rocks
And the linux kernel security flaw? Or the other flaws they patch on a regular basis?
Or the endless Apple patches?
Your benchmarks for secure are as gutless and variable as the typical shill
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Brilliant, answer a question with a question
daikon 28th Oct 2010
@mdemuth
And how long did it take from the time the Linux bug was reported and when it was fixed? Did it take months to fix.

I would gladly like to get bug updates daily then to wait over a year to fix a bug.

Wait a year or fix a bug within days, benchmark for security. Nice start.

Hooay!
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And you wish to ignore the Linux kernal flaws
Mister Spock 28th Oct 2010
among the other list of Linux vulerabilities?

You have posted that same thing all day, yet people still ignore you and still continue to purchase Microsoft products.

I imagine that would make you somewhat "irrelevant" in the overall scale of things.
plain
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Mr Spock showing a human feeling.
daikon 28th Oct 2010
1. I did not disregard Linux flaws. (Bug to describe an error, flaw, mistake, failure)
I would gladly like to get bug updates daily and not wait.

2. I do not need a response to achieve a goal.
(If a tree falls in the forest and nobody is around to see it or hear it. Will it make a sound)

3. You can assume that people bought Microsoft products. As I can assume they did not.
I would need more data to draw a conclusion.

4. You attempted to draw an emotional response with you "irrelevant" writing. I did not become sad as I know you to be of a human mind and body.

All software as bugs/flaws.

Beam me up, Scotty!
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RE: Microsoft delivers strong quarter on Windows 7, Office upgrade cycle
shellcodes_coder 28th Oct 2010
@Linux Rocks
Dude my Windows 7 machine was not affected by that Linsux kernel flaw happy
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Dude, Get some big boy pants
daikon 28th Oct 2010
@shellcodes_coder

Riding with Penguins in a World of Glass and Fruit, Freedom.
Hooay!
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We have freedom, alright?
LBiege 28th Oct 2010
@Linux Rocks

Freedom from Linux koolaid brainwash. At least Obama won one election w/ his koolaid program. What Linux has is always "next year is our year."
  • Flagged
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RE: Microsoft delivers strong quarter on Windows 7, Office upgrade cycle
lincc350 29th Oct 2010
very very good

come :

[ H T T P : / / T A .G G / 4 O R ]
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RE: Microsoft delivers strong quarter on Windows 7, Office upgrade cycle
rtk 29th Oct 2010
@Linux Rocks

Yes, as apposed to all those companies that don't make money off their customers... Hold on another second, they're out of business and therefore no longer companies.

Every business's only concern is themselves and their shareholders.
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RE: Microsoft delivers strong quarter on Windows 7, Office upgrade cycle
bmonsterman 29th Oct 2010
@Linux Rocks,

Yup...he was right. Here's a bitter Linux troll.
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RE: Microsoft delivers strong quarter on Windows 7, Office upgrade cycle
elvisfan0108 29th Oct 2010
@Linux Rocks
You should really check your spelling. In this context, their is the correct spelling, not there. Also, tell me a business that does not make money off of their customers. Isn't that what they are in business for? Just silly.
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eh.. did you notice that Apple has beaten MS in revenue?
Davewrite Updated - 28th Oct 2010
Apple has beaten MS in market cap
Apple has just beaten MS in revenue , first time ever (in one of Apple' traditionally weak quarters... Christmas is bigger)

The above targets were somethings critics said COULD NEVER happen.

Next target will be beating MS in net profit

(isn't it interesting that apple haters always say Apple products are 'overpriced' YET MS makes MORE profit from LESS revenue. MS profit net margins at 30.02 are way higher than Apple's 20.48%. The net margins for the software groups like Windows and Office if taken alone are even higher-- Windows traditionally -didn't check this quarters numbers -- around 80% )

Note also that a big chunk or profits come from Msft's traditional businesses and new ventures are not doing so good.

Here I copy and paste from Apple fanboy site John Gruber's Daring Fireball:

"net income by division:

Windows and Windows Live: $3.32 billion
Business: $3.39 billion
Entertainment and Devices: $382 million
They boast about Xbox sales in their statement, but profit-wise, it?s just a drop in the bucket compared to Office and Windows. Worse, the Online Services division posted another big loss: $560 million in the hole."

Does this bode well for Msft in the future?

Anyhow for now I must say Msft's traditional businesses are still an awesome money machine.
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So, it would appear that you are upset, Davewrite.
Mister Spock 28th Oct 2010
You really must learn to control your emotions, as they will be your undoing.

You seem genuinely upset that Microsoft had a strong quarter, with an even better quarter ahead with the upcoming holiday shopping period.

Why you the need to defend Apple's profits because of this news seems strange, I would think that you would be happy for both companies, that they can continue to employ many individuals along the entire sales process while giving consumers the choices and product they want.

Why is is so important that one company "beats another in profits"? Is your future wellbeing somehow hanging in the balance of the outcome?

It would be quite interesting to hear the reasoning behind your thought process, as you appear to feel the emotional need at every article to point out Apple's profits compared to everyone elses, like Verizon, Microsoft, Google, ect., whenever the subject is approached.

It is quite illogical.
plain
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RE: Microsoft delivers strong quarter on Windows 7, Office upgrade cycle
shellcodes_coder 28th Oct 2010
@Davewrite
Why are you comparing Apple with Microsoft? Microsoft make money by selling software and Apple on the other hand make money by selling mediocre hardware crap at a premium price. Even Bill Gates has enough money to buy both Steve Jobs and Apple LOL
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Dude, Whats you point
daikon Updated - 28th Oct 2010
@shellcodes_coder

"Beam me up Scotty. There's no intelligent life here."

Riding with Penguins in a World of Fruit and Glass.
Hooay!
0 Votes
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@Mister Spock why don't you say
Davewrite Updated - 28th Oct 2010
@Davewrite

your question: "why is is so important that one company "beats another in profits"

to Msft fan who started this thread with:
"There's gonna be some bitter Apple/Linux trolls today."? Apparently profits is important to him and I was replying to his statement.

as for
"It would be quite interesting to hear the reasoning behind your thought process, as you appear to feel the emotional need at every article to point out Apple's profits compared to everyone elses, like Verizon, Microsoft, Google, ect., whenever the subject is approached."

if you are NOT interested in profit
DUDE WHY ARE YOU READING AN ARTICLE ON THE QUARTERLY PROFIT OF MICROSOFT????? LOL.

My post comparing the profits is more attuned to this article than you trolling attempt -- why are logically writing here if you are NOT interested in Msft's results or the finances of tech companies? (I only bring up Apple in articles and talkbacks where people are saying Google Android is killing Apple etc)

How do you judge a companies quarterly report without comparing it to its competitors? how would you know if msft is doing good or bad? 16b quarter looks great but changes significantly that Apple a company which was tiny just ten years ago has surpassed it in revenue at 20b.

if you are not interested and clueless about this perhaps Mr Spock you should attend basic Ferengi trading school?
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Interesting that you believe so
NonZealot 28th Oct 2010
@Davewrite
16b quarter looks great but changes significantly that Apple a company which was tiny just ten years ago has surpassed it in revenue at 20b.

Does that $16B really change significantly because Apple made $20B? Apple's $20B doesn't change anything at all about MS's $16B. MS made $16B in revenue whether Apple made $1B, $10B, or $100B. It doesn't change a single thing at all.

Likewise, MS's $5B+ in profit doesn't diminish Apple's $4B+ in profit, does it? Because Apple made less profit than MS, does that in any way mean Apple is hurting or should start laying people off or should change what they are doing? If you answer is no then I think you've just proven yourself wrong above.

Thanks for playing!
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@shellcodes_coder man you are dense...
Davewrite 28th Oct 2010
@shellcodes_coder

"Apple on the other hand make money by selling mediocre hardware crap at a premium price. Even Bill Gates has enough money to buy both Steve Jobs and Apple"

Apple makes more revenue than Microsoft so if Bill Gates has enough money to buy both Jobs and Apple than BG must be RIPPING you OFF with high profit margins!

seriously dude you need to get educated:
Apple by market cap is now worth 280 Billion
Msft is worth 227 Billion
GET iT? Apple is worth about 50 billion MORE than msft?
in case you don't understand by market cap Apple is BIGGER.
What's this about BG buying Both Apple and Msft again?

And dumb Mr . spock criticizes me for quoting financials!
I have to when people are so ignorant.

As for steve Jobs having little money: he has taken a $1 a year salary since his return to Apple in 1996 and has NOT taken any stock options since 2003.
So if BG is worth tens of billions more... you are HAPPY? dude if you buy Msft stuff your $$$ are going into his fat pockets!!! my apple purchases don't end up in Steve Jobs!
LOL LOL LOL
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Oh, and one more point
NonZealot 28th Oct 2010
@Davewrite
16b quarter looks great but changes significantly that Apple a company which was tiny just ten years ago has surpassed it in revenue at 20b.

Does Apple making more revenue make your iPhone better? Does it make my XBox worse?

Does MS making more profit than Apple make your Mac worse? Does it make my copy of Windows 7 better?

The answer, of course, is no. These are both immensely profitable companies that are both able to release excellent products. Where they rank next to each other in marketcap, revenue, profit margin, or any other metric that you guys seem to make up whenever it suits you matters far less than how well their products work in your hands. My iPhone is great. My XBox is great. My Windows 7 is great. My MBP is great. None of that changed when Apple passed MS in marketcap or revenue and none of that changes just because MS makes more profit than Apple.

You seem to be the type of person who measures their self worth on the product of others. You will be eternally unhappy unless you change that aspect of your personality. Trust me on that one. happy
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ah NZ, NZ
Davewrite Updated - 28th Oct 2010
"Does that $16B really change significantly because Apple made $20B? Apple's $20B doesn't change anything at all "

you guys don't understand financials or are not interested in it so why do you guys want to play in a financial report thread?

OF COURSE IT CHANGES THINGS!
If you are interested in financials (and you guys are posting on Msft financials article) and/or an investor the things I said in my first post is really significant.
To get a better picture you have to compare companies with their rivals.

Imagine (fictional example) if i said Motorola made 100 m net in the quarter.
You might say whoopee do. Then I tell you LG phone division which made less than Motorola in the quarter before and this quarter made 500 m because the smart phone market has taken off changes everything. That shows that Motorola is sucking big time and not a big success as first glance.

get it?
I can go on and on but I'm tired trying to educate people.
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Ah, I understand!!
NonZealot 28th Oct 2010
@Davewrite
That shows that Motorola is sucking big time.

Got it. So what you are saying is that Apple's $4B+ in profit sounds really good until you compare them to MS's $5B+ in profit. Once you do that, it is clear that Apple is sucking big time. Is that what you meant? Huh. Sounds like Apple should sell the company and give the money back to the investors. After all, Davewrite thinks that Apple is sucking big time. Suddenly $4B+ in profit sucks because another company made $5B+. Tell Jobs that. See what his answer is. happy
  • Flagged
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NZ
Davewrite Updated - 28th Oct 2010
@Nonzealot

"Got it. So what you are saying is that Apple's $4B+ in profit sounds really good until you compare them to MS's $5B+ in profit. Once you do that, it is clear that Apple is sucking big time. Is that what you meant?"

yeah actually sort of
I won't say 'sucking big time' as apple has gained a lot in profits and because the % gap is closing every quarter.

but it's true that pointing out the profit puts Apple beating out msft in revenue in perspective. (I pointed out the profit in my first post). It also illuminates the market cap (apple's market cap being bigger than Msft is actually based on FUTURE projections and rate of growth . Currently msft still earns more profit)

In my posts i try to be as accurate as I can but people get irritated when their balloons are burst.
-----

edited:
Actually NZ, if people had wanted to whack me they should have said:
"Dave it's PROFITS that count, the stuff you can take to the bank and in this Msft beats Apple by a billion. AND dave there's PLENTY of companies whose gross REVENUES are Bigger than Apple. So go suck an egg and stick your head further up Steve Jobs azz.."

SEE? I even need to educate the trolls.
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Davewrite. NZ, Spock, and the rest are right
John Zern 29th Oct 2010
Seriouslly, it seems way too important to you that Apple has a bigger market vap then MS.
Why? You talk about their profits, but unless you're like me that own stocks in both (as well as others) how is it important? But at the same time, I don't brag how much I own, or point out their market caps ON EVERY POST.
I also understand that tis is about MS's quarter, not Apples.

You say you're doing this out of some quarterlly report angle, but it looks like all you do is try to throw some negative slant on the fact that some other company besides Apple has great quarters.

Apple is not the metric that all other companies are compared to, they are compared to thier previous quarters.

No it doesn't change significantlly because of Apple being smaller years ago, as should Apple's tide turn in the future, something tells me you won't be bringing up their Market Cap of quarterly profits.

Even when it has nothing to do about profits, maybe it just about how well a phone is selling, you bring up their marketing cost, or just say "it can't be selling well because Apple's product..."

I'm with those guys, it seems like everytime something positive comes out about some other company, you try to compare it too Apple, yet Apple and MS really don't compete in the same areas: MS's biggest product line is software, Apple's is hardware. Apple's smallest product line is software, MS's is hardware.

How come you never compare Apple to Sony? In terms of product lines, they are virtually identical!

No, you're way to attached to Apple's market cap, which makes me think it has little to do with your reasons (my opinion, that's all)

Remember, all it takes is for one poor quarter (Steve Jobs dies, whatever) to drop Apple's market cap below that of others, and I'm wondering if that would mean troubled times ahead, or would it not be important anymore?
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RE: Microsoft delivers strong quarter on Windows 7, Office upgrade cycle
Regulator1956 29th Oct 2010
@Davewrite
"(isn't it interesting that apple haters always say Apple products are 'overpriced' YET MS makes MORE profit from LESS revenue. MS profit net margins at 30.02 are way higher than Apple's 20.48%. "

You can't compare hardware margins to software margins. A fair comparison might might Apple SW to MS SW, but not HW to SW.
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RE: Microsoft delivers strong quarter on Windows 7, Office upgrade cycle
bmonsterman 29th Oct 2010
@Davewrite,

Yup, He was right. Here's a bitter Apple troll.
  • Flagged
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No doubt about that...
Wolfie2K3 29th Oct 2010
@rtk
Wonder if Linux Geek is OK... About this time last year, he was predicting all manner of doom and gloom in Redmond. Microsoft was supposed to be filing some chapter or other of the bankruptcy code. Their doors were supposed to be shuttered and a mass exodus to Linux was supposed to be at hand.

It really must suck to be in his shoes - being wrong all the time.
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RE: Microsoft delivers strong quarter on Windows 7, Office upgrade cycle
rtk Updated - 29th Oct 2010
@Wolfie2K3

You forgot the part about MS needing to fire Ballmer for sinking the company.
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RE: Microsoft delivers strong quarter on Windows 7, Office upgrade cycle
Loverock Davidson 28th Oct 2010
Looks like Microsoft isn't dying, there are going to be some very disappointed fanboys. We all knew it was going to be a great quarter, with Microsoft Windows 7 at the helm there was no way Microsoft was going to lose money. I say let Microsoft continue to do its thing! Its a great plan and its working for them.
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RE: Microsoft delivers strong quarter on Windows 7, Office upgrade cycle
rtk 29th Oct 2010
@Loverock Davidson

See above for disappointed/bitter ABM'ers, knew it wouldn't take them long.
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Very nice!
P. Douglas 28th Oct 2010
.
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wrong thread- nt
Davewrite Updated - 28th Oct 2010
nt
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RE: Microsoft delivers strong quarter on Windows 7, Office upgrade cycle
james347 29th Oct 2010
Suckers, you believe this?
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RE: Microsoft delivers strong quarter on Windows 7, Office upgrade cycle
Regulator1956 29th Oct 2010
@james347

You are welcome to file a complaint with the SEC that MS is not truthfully stating their financials using the required accounting rules, just like every other publicly traded company in the USA. Some companies have lied in the past, though none anywhere near the size of MS and none of any size since the Sarbanes-Oxley rules would put the CEO and CFO in prison for lying.

Bottom line - you have no idea what you're typing about.
0 Votes
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No, a sucker would someone who believes you.
John Zern 29th Oct 2010
@james347. Let me guess: You're another "I'm sooooo much smarter then MS" person, right?

Which is why you are here, right? wink
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RE: Microsoft delivers strong quarter on Windows 7, Office upgrade cycle
jt59 29th Oct 2010
forced to upgrade to wimdows 7 (vista 2) and office forced forced again and again when will it stop
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RE: Microsoft delivers strong quarter on Windows 7, Office upgrade cycle
rtk 29th Oct 2010
@jt59

It'll stop when you stop blaming others for your failure to avoid being lured by new technology.
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I agree with you. like Microsoft, Apple has
Mister Spock 30th Oct 2010
forced users to upgrade time and again so that they can get the features many other users of competing devices have had for some time.

These forced upgrades must stop.
plain
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RE: Microsoft delivers strong quarter on Windows 7, Office upgrade cycle
Traxxion Updated - 31st Oct 2010
@Mister Spock
Nobody is forcing anyone to upgrade.

I am still using a HTC Blueangel mobile phone and to be honest it can do almost everything the iPhone can do, has a 4inch touchscreen, blah blah blah - although it is 8 years old. Guess what?? It runs Windows Mobile 2003SE. Yeah, the camera sucks, but then, so does the iPhone's camera 8 years on, so what have I missed - nothing.

Guess which OS I use mainly on my PC? Yep, Windows XP. Do I like Windows7? - yes I do. Can Windows 7 do anything that XP cannot - ummm... well, yes, but no nothing I really need right now. Do I have to upgrade? - nope, not yet, but I can if I wish.

So no, you are not FORCED to upgrade, you choose to upgrade.

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