Microsoft's elephant in the OS room: Apple

Microsoft's elephant in the OS room: Apple

Summary: Are all of those Apple OS X vs. Vista commercials making an impact?

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Are all of those Apple OS X vs. Vista commercials making an impact? Microsoft's client revenue--Vista and XP came in below expectations--and the company cited three primary reasons: A tough comparison from year ago levels, OEM inventory build and piracy. But the elephant on the conference call may have been Apple and its Mac.

Microsoft's three reasons for the client malaise are all legitimate. What's curious is that piracy--always a big deal for Microsoft--was mentioned 12 times on the conference call by CFO Christopher Liddell and analysts, who were following the software giant's lead. The takeaway: Microsoft is facing tough growth comparisons and any blip in piracy levels can be the difference between Vista and XP hitting Wall Street targets. If Microsoft didn't need that extra percent of growth or two it's unlikely we'd get a conference call where piracy chatter was dominant.

Also see: Salesforce dumping 4,000 PCs for Macs?

But let's dig deeper: Could it be that the real elephant in the room was Apple? Let's be real: Apple isn't taking over operating system dominance, but it is growinapplemac.pngg fast enough to take away a few incremental dollars from Microsoft.

Pacific Crest analyst Brendan Barnicle connects a few dots in a research report:

Microsoft provided three explanations for the shortfall in Client revenue. First, that the OEM channel had built inventory ahead of the Vista launch last year, which drove 20% unit growth last year and made for a difficult comparison; second, that inventories at OEMs were higher than normal after fiscal Q2 (Dec.), which resulted in less OEM demand in the current quarter; and third, that it experienced higher piracy rates in Asia in the quarter.

While we cannot confirm the piracy rates, we have looked into inventory levels at the OEMs, and the Pacific Crest hardware analysts do not believe that the OEMs built inventories a year ago or in the last quarter. Microsoft's first two explanations are not consistent with our hardware analysis.

Microsoft's Client revenue results are also inconsistent with results from Intel and elsewhere in the PC supply chain. Apple, however, could provide an explanation for the shortfall, if it is taking market share. Microsoft certainly did not admit to losing share to Apple, but the most recent NPD data, which is provided below, suggest that there could be some share shift from Microsoft to Apple.

Anecdotally, Barnicle is on to something.

Consider the monthly NPD stats for the first quarter.

npd.png

Now contrast that with what Apple CFO Peter Oppenheimer had to say about Mac growth. Apple shipped 2.29 million Macs in its March quarter, a tally that was well ahead of expectations.

Oppenheimer noted:

We are extremely pleased to have shipped 2.29 million Macs, just shy of the record number of Macs we sold this past holiday quarter and representing 51% growth over the prior March quarter's results.

This is a 3.5 times the overall PC market rate of growth for the March quarter based on the latest forecast published by IDC, up from the 2 to 3 times market growth rate we have been reporting almost every quarter for the last three years.

Sales of desktops grew 37%, driven by strong demand for the iMac, as well as increased sales of Mac Pro, which we updated in January.

Sales of portables grew 61%, driven by continued strong demand for Macbook and Macbook Pros, both of which were refreshed during the quarter, as well as the successful launch of the Macbook Air. Macbook Air represents a new portable category for Apple and customers have responded very well to its breakthrough design and ultra portability.

Apple's global market share is only 3.3 percent among the 69.5 million PC shipped in the March quarter, according to IDC. But that market share tally is up from 2.5 percent in the March quarter a year ago. Why do those Apple gains matter? Those Mac sales most likely came at the expense of a new Windows machine.

Barnicle goes out another limb and argues that Apple is even taking away a little enterprise share. He writes:

In our Pacific Crest Mosaic surveys, we have seen increasing evidence of Apple taking share in the enterprise market. While Apple is not the only reason for the Microsoft Client shortfall, it seems plausible that it could be a larger factor than acknowledged by Microsoft. As a result, we are somewhat skeptical of Microsoft's assumption that its Client revenue will snap back next quarter.

Barnicle's take has some merit. Oppenheimer noted that a third of the Fortune 500 was signed up for the iPhone enterprise beta program. If these folks are interested in the iPhone chances are good that they aren't averse to bring Macs into their IT shops.

Meanwhile, Apple activity has been picking up on our sister site TechRepublic, a community of IT professionals. Consider the following:

  • Between 2000 and 2005, TR members made 97 forum posts that contained "Apple".
  • In 2006 that number skyrocketed to 62-a 220 percent to increase over a 19.4-post average for the period between 2000-2005.
  • In 2007, there were 108 posts TR-a 74 percent jump.
  • In 2008, that 2007 figure is likely to be eclipsed.

TR's audience is comprised of the folks that actually implement stuff. It's not the fanboy crowd. One sample response from an IT exec:

I started out as a Windows/Novell man, but now I advocate for Mac purchases and make them as much as I can. Two main reasons I do this: 1) on the whole, they require less time to support, much less time, actually, because the OS runs better and there are fewer malware concerns; 2) I practice the philosophy of keeping it simple. Mac software is easy to use and, more importantly, easy to teach to my IT employees. Macs and their server software are quite sophisticated, really, but I think back how many times did I actually try to make some kind of circus-like trust-object-hoolahoop-like security rights in Novell? Maybe once or twice in 10 years.

Rest assured that the Apple quote was buffeted by a bunch of Windows supporters as is often the case on ZDNet. But those pro-Mac comments are becoming increasingly common among IT types. It remains to be seen whether Apple can be a real enterprise player, but it doesn't have to do much to be a thorn in Microsoft's side. All Apple has to do is nibble and it will be harder for Microsoft to hit its client revenue growth targets--especially against tough comparisons.

Topics: Microsoft, Apple, Hardware, Operating Systems

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208 comments
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  • What's the bottom line

    What percentage of total desktop computers sold were mac's?

    How many dells, hp's, acers or generic with xp or vista were sold in the same time frame?
    ted185
    • IDC figures

      From the story:

      Apple?s global market share is only 3.3 percent among the 69.5 million PC shipped in the March quarter, according to IDC. But that market share tally is up from 2.5 percent in the March quarter a year ago. Why do those Apple gains matter? Those Mac sales most likely came at the expense of a new Windows machine.
      Larry Dignan
      • Apple's effect on MS revenue is tiny, but it's a huge change in MINDSHARE

        Microsoft's disappointing results are (I'll SWAG) mostly due to the PC market itself, up less than expected, and especially, still-satisfied XP users going to the "big-box" store and seeing how much more expensive it is to buy a Vista computer which runs decently (i.e., paying for 3 GB memory instead of one, paying for a fast dual core CPU, etc.)

        I think that only a few of them switch over to the "Apple" aisle in the store, and that many more just suffer sticker shock and go home without buying anything....

        But let me get to the point I intended to make. Although the financial loss to Microsoft which XP-->OSX upgrades causes is really small in comparison to MS revenue, the increase in the number of Apple computers "on display" at everyone's neighbors, and in offices, and at coffee bars, has gone up over 50% in a SINGLE YEAR.

        And so, the MINDSHARE that there there is an alternative to forced-down-your-throat Vista "upgrades" has a huge increase, and that could snowball.
        Rick S._z
        • Exactly right.

          And I am really curious to see what that snowball does when it hits.
          ajole
        • High Cost??

          Are you kidding?! You can get a dual-core vista pc nowadays with 2GB of ram for about $399.99 or less. Hell, I even saw a quad-core pc with 4GB and vista 64 and 750GB of HDD for 1099- 899 after rebates. I dont know what stores you are shopping in but pc and laptop prices have been dropping dramatically. I can give examples if you want.
          aizen
          • Yes, Aizen - and HOW well does it run the Doom That is Vista...?

            I made that mistake myself, purchasing a sub-$1,000 "Vista-Capable" 64 x2 Media Center PC running Vista Home Premium - only to discover it ONLY accepted and outputted analog video, ran from slow to dog-slow depending, and broke much of my hardware and a lot of my software.

            THOSE are the real costs to upgrading to Vista - and just about everyone has heard the horror stories from family, friends and business associates by now.
            drprodny
          • Those are not the real costs to upgrading.

            You didn't upgrade, you bought new, just for starters.

            It didn't break your hardware, you or your OEM did. It didn't break your software, you installed old and/or poorly written unsupported applications/

            You won't hear your family, friends and business associates tell you their horror stories, you'll hear them tell horror stories they read online, like your fiction above.

            I read vista also kicks your dog and feels up your wife, pass it on.
            rtk
          • Vista feels up the dog, kicks Wife

            Dude, the truth is out there for those with open eyes to
            see. I have every type of OS known to current tech folk and
            support users from DOS to Vista and Mac OS 8 to
            Leopard....Microsoft is not making better software than
            Apple. No way. Vista is ok once you beat it into shape and
            make it act more like XP. It is in NO WAY an improvement
            over XP, it is merely XP with a new Shower curtain in your
            bathroom, still stinks under the pretty little fishys that
            glimmer in the new plastic...but I digress.

            For any PC fanboy to make trite comments about a Dog
            and a Wife, much the same analogy that MS sells you
            toadies, marry our OS, as a Wife, but later realize you
            bought a Dog, then go kick yourself.

            Maybe you can improve your view by TRYING a Mac, use it
            for 5 days without prejudice and then you will realize that
            it is a superior OS, less prone to second guessing you, and
            does not have to whipped into shape to be useful. I will
            offer you free support for 2 emails or phone calls, should
            you venture to take the challenge.

            Until such time as you OPEN up and consider ALL the
            options, the banter of "pass it on" comments you make is
            just noise, not fact, not even researched, or intelligence
            gathered from real sources, hearsay, and not even "at
            best". Macswellsmart.com
            educateme9
          • High Cost

            You have got to be kidding. MS has cost me more money in down time than any of my Apple computers. My company is converting to Apple and weeding out all the Windows machines.
            bserrett
          • Maybe more people are...

            realizing that purchase price is not synonymous
            with total cost of ownership. If you add the fact
            that with VISTA, users have to essentially start
            over to learn how to use their computer and buy
            much of their software and even peripherals
            again, they look around to see what else is
            available. They might as well dump MS and get
            a Mac and that's exactly what many are doing.

            Many are learning that buying a complete
            integrated computer, made by one company is
            better than buying a computer, some of which
            is made by Dell or HP and the other half by M$.
            Computers are the only widely used products,
            where half is made by one company and the
            other half made by someone else, unless it is an
            Apple made computer. They make the whole
            enchilada.
            arminw
          • What is it with this "down time" claim?

            Ok, its a fact, Windows machines have been known to crash. They used to crash with some regularity when people were using Win98, particularly if the box was sporting newer hardware that the OS could no longer keep up with. But now a days, these claims of Windows box's dropping like flies is ludicrous. Sure, with the hundreds of millions of Windows machines in use, there are definitely crashes that still happen when they shouldn't, but if it was a real problem, at least the way some in the anti MS crown describe it, the internet and offices around the world would be in a constant state of shambles as they struggle daily to keep their systems up and running.

            Like it or not, do the wrong thing and any machine will crash, or do something you don't like.
            Cayble
          • Totally agree XP is rock-solid stable

            My impression of the couple of mates who have macs is that I have to restart my 3-year-old XP laptop less often than their newer macs. Neither crash of course, it's just been my impression that you need to restart the Mac more often to make changes to the system...

            I have to do something really freaky to make XP crash, and even then it won't be guaranteed. It might be just a case of restarting the explorer process and away she goes again. Certainly nothing that the average day-to-day user would be doing.
            james.faction
        • And, of course, there's this non-advertised thing going on

          which is thriving without the US Corporation (MS, Apple) dominated noise, bluster and me-me-me hand waving.

          Welcome to the knowledge economy. The world working together for the better of all.
          fr0thy2
          • The world will never work together

            for the better of all. Both League of Nations and the current United Nations have proved that. As long as selfishness is part of human nature, you're not going to find a solution and there is no one on the planet that knows how to root selfishness out of man.
            alaniane
          • True, but if we have an open communication and development infrastructure

            then greed and control through lies and manipulation becomes much more difficult.

            This begins to get to the root of my utter contempt for Microsoft. The markets are providing nothing here, merely showing that they do nothing but hold everything back in the name of Penelope and Rupert's self interest.
            fr0thy2
        • Methinks you are thinking too much

          The vast majority of people use a PC as a tool and as costs are forever coming down, it probably costs the same money to buy a Vista system this year as it did to buy an XP system last year. People don't read the specs and say 'oooh I am paying for 3GB RAM' they just buy what they like the look of - does it have DVD burner, how fast is it, can I hook my camera and other stuff.

          If you are a techie - yes you will notice you get more (bigger) hardware for your money and that 'bigger' hardware only runs the same speed, but offers you things you didn't have before, but you forget they are there after a while.

          If your thoughts were true then nobody would be swayed by the I'm a Mac ads, as any half-tech savvy person could tell you are absolute BS verging on lies... but hey that's how Apple works.
          Paul Fletcher
        • Switching to Mac

          I have been strictly PC for 15 years and have 6 PCs (4 laptops and 2 desktops) on my office wired/wireless network.

          This week, I overcame the sticker shock and added an iMac with a 24" wide screen and television capabilities. I payed (ouch) $674.00 difference difference between the iMac and a Dell with the identical specs (except the Dell had 4 gigs of RAM, the iMac has 2 gigs of RAM).

          I picked up the iMac the same day I convinced myself to purchase (rather than wait a week for the Dell (with Vista Ultimate), took it to my office, unpacked it, and it booted up perfectly with very little help from me.

          It immediately recognized the network, connected, and immediately recognized all the PCs. The PCs do not yet recognize the iMac however. Until I familarize myself with the iMac, I'm not able to say how it will integrate with my business but am looking forward to at least giving it a try. It does have some fairly neat attributes.

          Will I purchase another PC? You bet I will just as soon as I'm convinced that Microsoft has corrected Vista or provides a different/better OS.
          GeoffMichael
          • You need to get back in the Apple store and ask!

            Do you have any clue on how the windows machines which
            you have always liked communicate with each other ?
            It is SMB/CIFS - they piggyback IP packets with SMB
            information on the SMB TCP/UDP ports. The windows
            machines in your (office ?) don't see it, because you don't
            know that Macs by default do not open the SMB ports. You
            know you have the Blue Apple at the top of the screen,
            right ? well, there is a drop down from it, click on Systems
            Preferences and then choose Sharing (folder icon) , click on
            the Windows sharing Services, and this opens the Apple
            SMB ports on the Firewall, TCP ports (139) and UDP (137,
            and 138) it couldn't be any simpler !
            Again, 2 Macs do not communicate using SMB, or even on
            these ports (by default closed, but you can open them if
            you like) - You need to click on Files Sharing (which refers
            to Apples not to Windows) and this opens up the Firewalled
            ports (TCP 548, and 427).
            How simple, but I really suggest to you to go take a little
            class at your local Apple retailer - not the Mini Apple
            retailer. Best Buy personnel is not up to par yet.
            You chose the iMac (good choice) because of your
            addiction to GUI's.
            I choose the Mac(s) because of their Unix versatility.
            But I can't deny that they made iptables firewalling rules as
            easy as your proverbial eating the apple pie.
            sergiovf9
      • or

        Just as likely, those mac sales are a result of Apple faithful finally replacing aging hardware.

        I read somewhere Apple claimed 50% were new to Apple, I'd LOVE to know how they figured that out.
        rtk
        • They know because they ask...

          Are you expecting some kind of multi-million dollar "unbiased" survey team to be giving you these results on 'paid-to-view' whitepapers that you can tout or tear to shreds?

          They have a fair enough idea of who is new to apple because when you install/register your new apple machine, they simply ask during the plain, simple registration process. It's not so complicated.

          Sure, it is not 100% accurate, but I'll accept it just fine. I hear it in business and social places all the time corroborating it to the close degree that matters.

          The above person said it best. It is the MINDSHARE. It is not so socially unacceptable in the IT or Corp business fields these days to say "I have a Mac" or "I just got an Apple." Though, I still hear the hardcore people make snide remarks.

          I won't even begin to recount the amount of times now people had a look of envy or slack jaw at how fast and simple I can send them things like an email or weblinks on my iPhone. (I am sure a few may pick up that I wrote a couple times about my pocketPC phones, and how much they failed.)

          And, as for those saying "I can buy a 399$ vista machine"... Go ahead. Just, please, don't complain to us about it after.
          wolftalamasca