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

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

Summary: 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.

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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.

Topics: Enterprise Software, Hardware, Laptops, Microsoft, Mobility, Operating Systems, Software, Tablets, Windows

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56 comments
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  • A ding is just that - a ding.

    A "hit" is when a company spends millions developing a tablet and it doesn't sell very well at all.
    Will Farrell
    • RE: Weak PC sales likely to ding Microsoft's Windows cash cow

      @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.
      The Danger is Microsoft
      • I thought the article was about

        @The Danger is Microsoft <br>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.<br><br>Do you think any of those have recouped their monies yet?
        Will Farrell
      • Android tablets are selling, and predicted to eventually take over the

        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.
        DonnieBoy
      • Android tablets are selling? Then why isn't anybody

        @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.
        Will Farrell
      • RE: I thought the article was about

        @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?
        Gis Bun
        • RE: Android tablets are selling, and predicted to eventually take over the

          @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.
          Gis Bun
      • Please don't feed the trolls!

        @The Danger is Microsoft
        Will Troll is one of the chief MS shills around here.
        rahbm
    • In any case, as Win32 fades, so will Windows Desktops. The masses are just

      not using Win32 applications anymore.
      DonnieBoy
      • Sure thing Donnieboy whatever you say

        @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.
        Will Farrell
      • RE: Weak PC sales likely to ding Microsoft's Windows cash cow

        @DonnieBoy <br>"not using Win32 applications anymore".<br>No, we're using Win64 now :P<br><br>I really don't see the masses not using Win32 applications (because they are; and more so than tablets). - atleast at the moment.<br>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). <br>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).<br>"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<br>I think you can add Microsoft to that list...
        xnederlandx
      • RE: Weak PC sales likely to ding Microsoft's Windows cash cow

        @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.
        DevGuy_z
      • RE: Weak PC sales likely to ding Microsoft's Windows cash cow

        @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.
        Rob.sharp
      • RE: Weak PC sales likely to ding Microsoft's Windows cash cow

        @DonnieBoy : And your proof?<br><br>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.
        Gis Bun
    • RE: Weak PC sales likely to ding Microsoft's Windows cash cow

      @Will Farrell

      Minor correction, you are referring to taking a hit.
      Rick_K
      • True, but...

        @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.
        rahbm
  • A string of unfortunate events.

    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.
    Bates_
    • RE: Weak PC sales likely to ding Microsoft's Windows cash cow

      @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.
      The Danger is Microsoft
      • Wrong: the consumers have made the entry high.

        @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.
        Will Farrell
      • RE: Weak PC sales likely to ding Microsoft's Windows cash cow

        @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.
        Bates_