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Weak PC sales likely to ding Microsoft's Windows cash cow

By | April 14, 2011, 9:24am PDT

Both IDC and Gartner reported weak first quarter sales for the PC industry and that’s likely to translate into some profit headwinds for Microsoft in its fiscal third quarter.

IDC said PC sales fell 3.2 percent in the first quarter due to media tablet sales, Japan’s earthquake, oil costs (which take money away from the IT budget) and slowing corporate demand. Gartner called enterprise PC sales a bright spot, but projected that first quarter sales will be down 1.1 percent. The upshot: PC sales are weaker than expected.

All of those slowing PC sales figures point in Microsoft’s direction since partners HP, Dell and Acer saw unit declines. Among key Windows PC partners, only Lenovo showed strong gains. Analysts on Thursday were scurrying to lower estimates for Windows revenue. Barclays analyst Israel Hernandez said:

While 1Q growth rates were worse than expectations, we believe the result underscores persistent headwinds that Microsoft’s Windows business is likely to face in coming quarters, chiefly a maturing PC market but more ominously share erosion to new form factors such as tablets and smartphones and a resurgent Mac platform, which year-on-year increased share from 7.3% to 9.3% in 1Q according to Gartner.

Morgan Stanley analyst Adam Holt noted that the pressure is on Microsoft to deliver a tablet answer with Windows 8. Without answers to the tablet market, Microsoft will be increasingly at risk for its Windows cash cow. Fortunately for Microsoft, the Servers and Tools unit should offset weakness in Windows.

Oppenheimer analyst Brad Reback said everything that could go wrong in the first quarter for PC sales did. For instance, Japan was hit with its earthquake, consumers were buying tablets and Intel delayed Sandy Bridge. But Reback said that the corporate PC upgrade cycle should give Microsoft some comfort.

Although the PC market still struggles, we believe one bright spot remains the professional/enterprise market. We believe the relatively stable macro-economy coupled with pent-up demand is driving solid uptake across large enterprises. Additionally, we believe the SMB refresh-cycle is just getting underway and should aid growth throughout 2011.

In January, Microsoft projected that its Windows and Windows Live unit would grow in line with PC sales. Now that projection equates to a small decline for Windows revenue.

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Topics

PC, Microsoft Corp., Sales Strategy, Sales Force Management, Tablets, Microsoft Windows, Desktops, Sales, Hardware, Notebooks & Tablets, Operating Systems, Software, Larry Dignan

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

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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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True, but...
rahbm Updated - 15th Apr 2011
@Rick_K
By replying you merely encourage him!

If only ZDNet would institute a troll filter; I wouldn't miss DonnieBoy either, and it would be so pleasant to be able to read some reasoned and well-thought comments, without having to wade through the morass of postings by all the shills and trolls who infest this site.
View in thread
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A ding is just that - a ding.
Will Farrell 14th Apr 2011
A "hit" is when a company spends millions developing a tablet and it doesn't sell very well at all.
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RE: Weak PC sales likely to ding Microsoft's Windows cash cow
The Danger is Microsoft 14th Apr 2011
@Will Farrell - unless it's a true 'hit' like Apple's iPad. Sorry. Apple is making billions on this 'hit'...unless MS which has made nothing from this sector.
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I thought the article was about
Will Farrell Updated - 14th Apr 2011
@The Danger is Microsoft
and OS's, meaning the companies that have spent millions on Android/Honycomb/Windows based tablets that haven't sold very well to be profitable. MS hasn't spent millions in this market, yet the OEM's have.

Do you think any of those have recouped their monies yet?
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Android tablets are selling, and predicted to eventually take over the
DonnieBoy Updated - 14th Apr 2011
tablet market as happened for smart phones. Windows tablets have sold virtually zero, and are only predicted to be used in verticles. Windows 8 could be years off, and might be another Vista.

Apple is a formidable competitor, but, Google, along with manufacturers are not willing to cede the market Apple, and will invest substantial funds and compete fiercely. They will not give up if first models are not as successful as iPad.
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Android tablets are selling? Then why isn't anybody
Will Farrell 14th Apr 2011
@Donnieboy
giving sales figures? When asked, you can hear the crickets chirping.

What's odd is that many Android based tablets have sold virtually zero, but you never comment on them, just skip over all of that and talk Win32, like a broken record.

I feel very sad for you at times.
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RE: I thought the article was about
Gis Bun 15th Apr 2011
@Will Farrell : PC companies probably buy a certain amount of licenses at a time from Microsoft. If the companies can't market their products, it is their problem. Sh?t, I even saw Dell was still selling a Celeron desktop! Who'd buy that crap?
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RE: Android tablets are selling, and predicted to eventually take over the
Gis Bun 15th Apr 2011
@Donnie Boy : You are REALLY brainwashed. Before you dump useless statistics at us, how about showing some proof that Windows tablets have sold virtually zero. Windows 8 ywars away? Yes maybe at most 2.
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Please don't feed the trolls!
rahbm 15th Apr 2011
@The Danger is Microsoft
Will Troll is one of the chief MS shills around here.
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In any case, as Win32 fades, so will Windows Desktops. The masses are just
DonnieBoy 14th Apr 2011
not using Win32 applications anymore.
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Sure thing Donnieboy whatever you say
Will Farrell 14th Apr 2011
@DonnieBoy

even after being shot down and corrected you still cling to that sentence like it'll come true if you say it enough.

That only works in the movies.
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RE: Weak PC sales likely to ding Microsoft's Windows cash cow
xnederlandx Updated - 14th Apr 2011
@DonnieBoy
"not using Win32 applications anymore".
No, we're using Win64 now :P

I really don't see the masses not using Win32 applications (because they are; and more so than tablets). - atleast at the moment.
Also, some loss in the desktop segment (as people get mobile devices) should inevitably come out in Tablets/Laptops. Windows is on laptops, and should be on tablets when Windows 8 comes out (mid-2012 is the figure which is being speculated).
I don't think Windows 8 will be a vista, as the romours say it won't advance the baseline requirements (in the same way as Windows 7).
"Apple is a formidable competitor, but, Google, along with manufacturers are not willing to cede the market Apple, and will invest substantial funds and compete fiercely. They will not give up if first models are not as successful as iPad. " - DonnieBoy
I think you can add Microsoft to that list...
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RE: Weak PC sales likely to ding Microsoft's Windows cash cow
DevGuy_z 15th Apr 2011
@DonnieBoy That is just crazy. Look at the sales figures. No one is coming close to selling that much software. 6 billion in profit? 19 Billion in revenue. In a quarter? Posts like this make you sound like an idiot.
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RE: Weak PC sales likely to ding Microsoft's Windows cash cow
Rob.sharp@... 15th Apr 2011
@DonnieBoy

Let's not lose sight of Productivity. Tablets and Smartphones aren't very "Productive" yet. Sure they allow you to access information easily but if you want to get any "Real" work done you sit at a desktop or laptop. Too many people getting caught up in the luster of these devices that have a very long way to go before they do any real damage to the desktop sector.
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RE: Weak PC sales likely to ding Microsoft's Windows cash cow
Gis Bun Updated - 15th Apr 2011
@DonnieBoy : And your proof?

Nobody seems to agree with your comments because you can never supply ANY shred of proof. And this comment coming from someone who probably doesn't even have a Windows computer. Go back to the dreaming you do so well.
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RE: Weak PC sales likely to ding Microsoft's Windows cash cow
Rick_K 15th Apr 2011
@Will Farrell

Minor correction, you are referring to taking a hit.
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True, but...
rahbm Updated - 15th Apr 2011
@Rick_K
By replying you merely encourage him!

If only ZDNet would institute a troll filter; I wouldn't miss DonnieBoy either, and it would be so pleasant to be able to read some reasoned and well-thought comments, without having to wade through the morass of postings by all the shills and trolls who infest this site.
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A string of unfortunate events.
Bates_ 14th Apr 2011
I wouldn't worry about Desktop sales much. They will climb back up a little bit down the road. Just from personal experience, desktops dominate the corporate environment, at least it does in my company. We buy Acer Veritons by the butt load here. Tablets can't replace a desktop. I think of a tablet as an extension to the desktop, not a replacement.
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RE: Weak PC sales likely to ding Microsoft's Windows cash cow
The Danger is Microsoft 14th Apr 2011
@Bates_ - seriously? Desktops could recover nicely is someone else came into the OS market. But that won't happen since Microsoft has made the barrier to entry so high.
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Wrong: the consumers have made the entry high.
Will Farrell 14th Apr 2011
@The Danger is Microsoft
the majority of consumers are buying Windows based PC's, not OS X based, or Linux based. MS hasn't made the barrier high.

Your make believe logic is just that - make believe. If you understand manufacturing/computer market you'll understand that the OS is one of the least expensive parts of the whole thing, about $40 dollars of the overall cost.

The other $559 of the cost of a $599 is related to everything else in the box.

Sorry, your argument doesn't wash.
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RE: Weak PC sales likely to ding Microsoft's Windows cash cow
Bates_ 14th Apr 2011
@The Danger is Microsoft I'm suppose to take anything someone with a user name like yours says seriously? Yea don't think so, your argument is lacking anything thought, and is just full of hate towards MS with no actual facts or lucid reasoning. Nice try, don't play again.
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Will Farrell: Windows is pointless if you do not run Win32 applications.
DonnieBoy Updated - 14th Apr 2011
And, Windows adds a lot more than $40 to the price, as it also requires for the foreseeable future x86, AND, more memory, more processing power, etc. In any case, who would pay even an extra $40 for a computer with a tired old legacy OS when you can have a Google or Apple OS??? Google and Apple have a high cool factor, MS has a very high boooooring factor.
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DonnieBoy, now you're just talking stupid
Will Farrell Updated - 14th Apr 2011
@DonnieBoy
How much more does Windows cost in the overall price of a PC? I would like to hear your estimate?

Google has a cool factor? then why is everyone moving away from Google? Should I list all the "cool" Google stuff discontinued? Cool companies don't capture your wifi.

Android? How many people even know Google is associated with it? So sorry, Google is not considered cool by any stretch of the imagination, they are pretty Booooring anymore.



This doesn't happen to cool companies
http://money.msn.com/market-news/post.aspx?post=969ee086-c9ae-4f75-b3b8-cb99bafdb517>1=33009

But Kinect is cool, Surface is cool, Even Windows.

And ChromeOS? Booooring.
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RE: Weak PC sales likely to ding Microsoft's Windows cash cow
Gis Bun 15th Apr 2011
@The Danger is Microsoft ": It's nice to be biased, huh? It's been 15+ years since Windows 95 came out and there are still people who are whining about monopolies or other terms for it.
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RE: Weak PC sales likely to ding Microsoft's Windows cash cow
Rick_K 15th Apr 2011
@Bates_
I think of a tablet as an extension to the desktop, not a replacement.

Finally, someone that gets it. I can see tablets used as another tool in the sales persons? arsenal, but not as a "replace all" sort of thing. Imagine going to the car dealer and have them use a tablet (doesn?t matter which one), to show features of the car a customer is interested in. They can also be used to replace owners Manuals. Just download the data, rather than having a 400 page booklet.
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RE: Weak PC sales likely to ding Microsoft's Windows cash cow
Synthmeister 15th Apr 2011
@Bates_
This is the first time ever that PC sales have declined 3 quarters in a row.

This is a tipping point, inflection point, disruption point, whatever you want to call it. When Apple sells 45 million iPads this year, that will be over $25 BILLION that does not go towards PCs, OEMs, MS and PC-software and peripherals. And we're not even talking about iPhones and iPod touches which will sell 70 to 100 million units and form a huge moat around the iPad by sharing apps, peripherals, retail distribution, developers, OS and hardware components.

MS better start praying that the Android/HPalm/RIMQnx tabs aren't half as successful as the iPad.

The iPad is going to completely eviscerate PC growth and if any of the other tablet platforms gain traction, it will turn into complete carnage.
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RE: Weak PC sales likely to ding Microsoft's Windows cash cow
Socratesfoot 14th Apr 2011
"But Reback said that the corporate PC upgrade cycle should give Microsoft some comfort." -

...assuming that corporations are willing to buy into Windows 7 and not either rolling back to XP or converting over to Linux. But, I'm not sure I'd be so optimistic.
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It hasn't happened now, so it won't in the future.
Will Farrell 14th Apr 2011
@Socratesfoot
So their optimism is well placed. History has shown that most companies see Linux as something of a non-starter, and XP usage is on the decline, with companies hitting the upgrade cycle they put forth on schedule.

Remember the many companies interviewed at the release of Win7? Most of them had 2011-2012 as their upgrade period to Win7, so I'll go with the experts and their optimism.
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RE: Weak PC sales likely to ding Microsoft's Windows cash cow
Socratesfoot 14th Apr 2011
@Will Farrell I think your information is dated. Linux dominates the server market, dominates the tablet market, and except for the US markets, more and more companies are seeing Linux as viable desktop as well. As for US Markets, Windows XP usage has continued well past the it's supported life and after 14 years saying it is "in the decline" seems without merit. Furthermore, I have to wonder what companies will do if the WINE/Linux combination eventually offers greater legacy support than Windows itself. Remember, at one time companies thought virtual machines were impractical replacements for production servers too.
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Linux dominates "tablets"!?! Seriously?
James Quinn 14th Apr 2011
@Socratesfoot

Just saying....

Pagan him
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Linux does dominate the server market
Michael Alan Goff 14th Apr 2011
But take every Linux tablet ever and compare them to iPad sales.

iPad wins.
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Linux market share is 0.85%
Mr. Dee 14th Apr 2011
@Will Farrell So its hard to say that Linux is dominating anything, considering that Linux is just 0.7% usage in the US according to Statcounter, a lot of this dominate argument is just a pipe dream. Considering that Microsoft Exchange is running in 70% of enterprises along with Windows Server having a current marketshare of 70% on server shipments, I am likely to believe the majority of servers and desktops are Windows based. The iPhone is actually the dominant smartphone, I have seen it with my own eyes. Android is dominating nothing, I passed through 3 airports and counted over 100 iPhone 4's on my way to my destination and only counted 3 Android based Smartphones along the way. Google is inflating numbers, just like how they lied about FISMA.
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He should say that *nix dominates tablets and smartphones, as Linux, iOS,
DonnieBoy Updated - 14th Apr 2011
WebOS, and now RIM, are all "Unix" operating systems.
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Socratesfoot, what segment of the market
Will Farrell 14th Apr 2011
@Will Farrell
does Linux server dominate? Web servers? For every internet facing Linux server, chances are extreamlly good that there are Windows servers running the company's network.

To say it dominates the server is really nothing more then a guess.
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RE: Weak PC sales likely to ding Microsoft's Windows cash cow
Pete "athynz" Athens 14th Apr 2011
@Socratesfoot Dude what are you on because that has got to be some serious ****... Linux dominates the server market, dominates the tablet market,... I keep hearing from you Linuxheads about this dominance of the server market - got any figures to support this? Nope, didn't think so. And how is this "domination" of the Tablet market working out? Let's see the Galaxy Tab was supposed to be the one that ended the iPad's reign... yeah that was the tablet that Samsung had fudged the sales figures on. The Motorola Xoom - sure because everyone wants a tablet that has a higher up front cost than the iPad and then adds a 2 year data contract on top of it... Yeah, keep right on smoking that stuff bro.
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RE: Weak PC sales likely to ding Microsoft's Windows cash cow
Rick_K 15th Apr 2011
@Socratesfoot
...assuming that corporations are willing to buy into Windows 7 and not either rolling back to XP or converting over to Linux. But, I'm not sure I'd be so optimistic.

Here?s the rub, Microsoft will get paid for the license, even if it is never used. Microsoft could care less, if every computer has an active Windows 7 license, just as long as you pay for that license. You could in fact buy 50 Windows 7 retail disks and use them for target practice, and Microsoft would be very happy.
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Don't forget Apple's Mac sales were up.
itguy08 14th Apr 2011
Apple was up right around 10% last quarter.....
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RE: Weak PC sales likely to ding Microsoft's Windows cash cow
jatbains 14th Apr 2011
@itguy08 Mainly in notebook sales. The migration from desktop to notebook to tablet/smartphone is gaining steam.
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RE: Weak PC sales likely to ding Microsoft's Windows cash cow
The Danger is Microsoft 14th Apr 2011
@itguy08 - a new player HAS to enter the market. Or PC sales are doomed in the consumer market space.
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You're wrong, but if you say the same thing enough
Will Farrell 14th Apr 2011
@The Danger is Microsoft
at least someone like Donnieboy may actually believe you.
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Message has been deleted.
Loverock Davidson Updated - 20th Apr 2011
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It's not him
Robert Hahn 14th Apr 2011
All you people who think that Loverock Davidson is really Steve Ballmer have just been proven wrong. Under Sarbanes-Oxley, no corporate CEO would get caught dead making a flat-out prediction that "next year... they will report record earnings." The class-action lawyers would be on him like ugly on an ape.

We now know that L.D. is not a board-appointed officer.
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RE: Weak PC sales likely to ding Microsoft's Windows cash cow
Blogsworth 14th Apr 2011
I'm getting worried. I haven't seen a post by Donnieboy on this subject. You know, along the lines of "blah blah Microsoft sucks blah blah.
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RE: Weak PC sales likely to ding Microsoft's Windows cash cow
Theseus 14th Apr 2011
Windows is fine in the corporate/enterprise market. It's not going anywhere.

For retail consumers, there are obviously a lot more choices. A large amount of people I know have already gone over to a Macbook Pro for home and personal use. The iPhone was the influencer here; one sells the other, and so forth.
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RE: Weak PC sales likely to ding Microsoft's Windows cash cow
omdguy 14th Apr 2011
Note that PC parts are getting more reliable, so replacing the entire thing is no longer necessary, you can simply add memory, larger HD, faster proc etc.

Try doing that with a tablet....
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RE: Weak PC sales likely to ding Microsoft's Windows cash cow
ack82861 14th Apr 2011
I think the consumer PC is safe, but the shift will be to the laptop/desktop replacement in their homes. I think the Tablet will eventually become more of a business tool than a consumer toy. The big box consumer PC will become a dinosaur soon, except for hard core gamer's.
A successful Co. like Microsoft will change with the market and make the necessary changes/adjustments to their OS's to stay on top.
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RE: Weak PC sales likely to ding Microsoft's Windows cash cow
sfitservices 14th Apr 2011
XP PC's still work fine, the COA on the side of the box is valueless now on an XP Machine......... where did all of that respect for customers go?
perhaps it wasn't there to start with!!!!!!!

There must be an alternative.
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RE: Weak PC sales likely to ding Microsoft's Windows cash cow
sfitservices 14th Apr 2011
lets face it..... with people using mobile devices using android....... (which is linux) and people using macs as a differential option (which is BSD based {basically linux})

eventually desktops will become linux based too for compatibility and integrity issues.
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RE: Weak PC sales likely to ding Microsoft's Windows cash cow
Rick_K 15th Apr 2011
@sfitservices
and people using macs as a differential option (which is BSD based {basically linux})

Actually OS X is a certified version of Unix, not Linux. But they do in fact share a common ancestry.
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Weak? That's an understatement.
james347 14th Apr 2011
No ONE wants PC's anymore, especially if they run Windows. Apple is on the road to total domination because they know how to deliver a comprehensive, total, computing experience that is more focused on productivity and less on patching and updating virus defs.
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Really?
LiquidLearner 14th Apr 2011
@james347

What's the fastest selling consumer electronics device of all time? Oh, that's right. A Microsoft product. What's the fastest selling software package of all time? What's that you say, Windows 7? Hmmm...

If by "No one wants" you mean "an incredibly large number of people want" then you're dead on!

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