Microsoft has no fast Windows fixes as PC sales crater

Microsoft has no fast Windows fixes as PC sales crater

Summary: Microsoft can ride Windows 7 upgrades in the enterprise for a bit, but the dismal PC sales picture is worrisome for the company's flagship OS---especially if it can't get tablet and smartphone traction.

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PC sales in the first quarter were dismal as tablets continue to eat away at laptops and desktops. That reality is likely to put Microsoft and its big bet on Windows 8 in the crosshairs in the quarters to come.

IDC and Gartner reported that PC sales tanked in the first quarter. IDC even noted that Windows 8 not only failed to give the PC market a boost but may have paused it. Worldwide PC shipments totaled 76.3 million units in the first quarter of 2013, down 13.9 percent compared to the same quarter a year ago, according to IDC.

Yes, Apple also saw unit declines in the first quarter, but gets a bit of a pass. Why? If the iPad cannibalizes the Mac at least it's in the same Apple family.

Debate: Can Windows 8 be saved?

For Microsoft, Surface, a bevy of hybrids and Windows 8 tablets aren't moving enough to offset a PC decline. IDC said:

PC industry efforts to offer touch capabilities and ultraslim systems have been hampered by traditional barriers of price and component supply, as well as a weak reception for Windows 8. The PC industry is struggling to identify innovations that differentiate PCs from other products and inspire consumers to buy, and instead is meeting significant resistance to changes perceived as cumbersome or costly.

idc-1q13-pc-shipments-chart01-620x421

 

But don't expect Microsoft to fall apart over the post-PC era just yet. Microsoft's Windows sales may outperform PC sales---at least for now. Here's why:

  • Microsoft can still ride the Windows 7 upgrade cycle in the enterprise. 
  • The end of XP support will boost the corporate upgrade cycle. 
  • The enterprise Windows license is roughly double what an OEM pays selling a PC to a consumer.

Barclays analyst Raimo Lenschow said:

While most investors already knew the PC market was weak during the quarter, we believe the extent of the decline is a surprise. Excluding the recognition of deferrals (~$1.1bn) and our estimate of Surface revenue ($585m), we are currently modeling for Windows revenue of $4.612bn (flat y/y) this quarter. While this is clearly out of sync with the shipment data, similar to last year when Windows growth also outperformed PC shipments, the company should continue to benefit from the Windows 7 upgrade cycle in the enterprise, where the Windows license fee is approximately double what the company receives when an OEM sells a PC to a consumer. With the most recent data suggesting that ~40% of enterprise customers still need to upgrade from Windows XP, Microsoft should continue to see this positive mix benefit this quarter, thus helping drive Windows revenue growth higher than the very poor growth rate in PC shipments.

In other words, Microsoft Windows' Armageddon will be delayed.

However, the PC sales report is dismal and ultimately that spells pain for Microsoft. BCG analyst Colin Gillis downgraded Microsoft based on the theory that PC sales will continue to fall. Gillis said:

While we remain supportive of the quality and innovation of Microsoft’s software to power phones and tablets, traction in the marketplace remains lackluster. Tablet growth is estimated by IDC to reach 190 million units and post 49% growth. We estimate that smart phone shipments could exceed 1 billion units in 2013, above IDC forecasts of 918 million as emerging countries increasingly turn to inexpensive Android phones for their mobile computing needs. Microsoft’s minimal participation in these markets is becoming an increasingly urgent problem that may be prove difficult to reverse.

Gillis added that Google's Chromebooks are also a worry. Even if CEO Steve Ballmer is tossed, Microsoft will have issues. "There are no fast fixes for Microsoft to the current shift in computing trends," said Gillis.

Topics: Microsoft, Enterprise Software, Operating Systems, PCs, Microsoft Surface

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329 comments
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  • The Windows 8 GUI

    It's a total design disaster for desktops and no wonder people are not buying it.
    Alan Smithie
    • that will be worse when they force users to run all win 32 applications

      on metro too and remove desktop completely which i believe they are going to do it very soon maybe after blue! this is the road they are into and i think even if they want to change and bring old desktop back it would be very difficult for them!
      one other thing i have to add is these declines are before Google attacking them with all their forces if they show something cool for desktops in google i/o MS will be even in a more deep sh.
      L3thargic
      • if you believe that ...

        ... Microsoft are going to remove the desktop shortly after Blue, then I have a bridge to sell you.

        Simply removing the desktop won't make desktop apps magically metro nor any more usable on tablets, which is where metro apps really shine.

        There is ZERO chance that Microsoft would remove the desktop from Windows 8 and render their OS unable to run the tens of millions of desktop apps, LOB apps, enterprise apps, etc. unable to run.

        Microsoft is obsessive about backward compatibility, which is why enterprises trust and rely so heavily on Windows.
        bitcrazed
        • Wrong.

          Windows Multipoint Server can be aimed at enterprises looking for Desktop functionality, and taking out the Desktop from Windows/Windows Pro could be their way of monetizing that move: professional organizations still have legacy support while groups looking to reach the consumer market have two choices: make "Modern UI" apps available to the consumer, or be enterprise only if they still insist on using the Desktop.

          What you are right about: it's not going to happen in the next three years. If they continue to lose the market, backwards compatibility WILL go out the window.
          saphirantcross
        • Fine logic, except...

          Microsoft has already told developers that the desktop interface is going away and that Metro is the future of Windows. I'm pretty sure they wouldn't say that unless it was really their plan. Does it defy logic? Absolutely! Is it going to happen? Sadly, that's their current plan. Removing the desktop is the only way to get all future Windows applications to run exactly the same across desktops, tablets, XBox, and smartphones. Cross platform is their new obsession, not backward compatibility. Whether that's a smart decision is a matter of opinion. Personally, I think MS is mental for putting all of their eggs in the Metro basket.
          BillDem
          • Fine logic, except...

            Bill, you’re missing the point. Cross platform is only a smoke screen. The real reason MS will eliminate the desktop is money. They want us to have to buy ALL our software from them as apps from their store, or rented as SaaS. They don’t want us making a single purchase of software and then running it as long as we have the hardware to do so. They don’t want us using a software package on multiple machines. They want us to pay a license for every machine we run it on.

            Doc
            Doc.Savage
          • 5 MACHINES

            Doc,

            Here is the current state of Office 365, from the Microsof web site.

            Per-User Microsoft Office Licensing

            Microsoft Office Professional Plus for Office 365 is licensed on a “per-user” basis. Users must assign each Microsoft Office license to a single named user before using the software. Each user that is assigned a license may then install and use one copy of Microsoft Office per device, on up to five devices. Customers may only use Office Professional Plus for Office 365 locally.
            mswift@...
          • Doc.Savage is right.

            Of course, BillDem is right about many things, as I have been reading his posts over the last few days, but Doc.Savage is pointing out something that is really, really important: Microsoft is not as stupid as millions of users think they are. People think, "Oh, they are lacking in understanding of UI concepts." "Oh, they are trying to merge desktop UI with tablet UI."

            These are all secondary facts. The primary fact, which Doc.Savage points out, is that behind all of this non-sense, is a deliberate, methodical, strategy, and that is to herd everyone toward Metro, so they can rake in the $$$. Microsoft will get 20-30% cut of every Metro app sold. It a HUGE amount of revenue. But to make their plan work, they have to get all of us off the desktop. Legally, they cannot start charging a tax to developers for desktop applications. DOJ would not allow it. But if they claim that it is a "new OS", by way of Metro, then ...it's OK, kinda-sorta. This is the fundamental reason that underlies the rest of all the recent stupidity from Microsoft.
            Le Chaud Lapin
          • If so, they've miscalculated

            Just about everyone I have heard write about their experience with Intel Windows 8 goes to the desktop as fast as their mouse can carry them!
            Mac_PC_FenceSitter
          • Why we rush to the the desktop

            That's a bit unfair. One of the principal reasons why pple get to the desktop so fast is that their apps are all desktop ones not necessarily because they hate the Metro UI. So if they want to use them we have to go there. It's not just a question of whether they like it or not.

            I treat the Start Screen as an enlarged Start Menu. The rest I don't have to care about unless my apps get upgraded into the Metro UI.
            genghis7777
          • So, what's new?

            Microsoft is out to corner the market and make money. What makes Microsoft any different from every other company? Whether it's automobiles, microwaves, coffee makers, TVs, Internet services, phone services, or even groceries, all companies want to do everything they can to make more money. Just look at the continuous increases in gas - even when the cost of crude oil goes down. That's just the nature of business.
            Webminotaur
          • It is stupid right !!!!

            They think it is so terrible that a company would actually produce products and services with the hope and expectation that people will buy those products, keeping the customers happy and making some money as a bonus !!!

            It's the real world after all, not lala land..
            Aussie_Troll
          • "Rent" on other people's work

            No, Aussie (great place, BTW) - it's not terrible to make money by creating value, but it's a bit odious to charge a slice on other people's work. That is the new "business opportunity" Apple created with the iStore, and what MS wants to duplicate.

            The post-Internet world is a strange and perverse place. As consumers and netizens, we expect everything to be "free" - so you have a triangular relationship between who uses, who makes, and who gets paid and pays. This is inherently unhealthy, as it separates value orientation at the expense of the consumer, and often also the provider. It's not just an Internet thing; insurance has a similar effect, e.g. for medical services etc.

            The Apple/MS "shop" concept harks back to an earlier age dominated by physical constraints; the 'middle men" who pass value through a geographical chain from the creators of value, to those who consume it. How has this arisen, and why now?

            Pervasive Internet connectivity is only part of the story; it's also driven by the gap between the passing age of MS monopoly in the PC space, to tomorrow's monopoly or oligoloply in the sub-PC space. Apple is emerging as a post-PC monopoly power, but is balanced by "open" Android, and Apple is still beloved by the media and investors - so Apple can still act in drastic extortionate ways, as MS cannot. But in a "post-PC" future, MS will not have monopoly power, so now is the time for them to pull drastic moves in the emerging sub-PC space; hence all these aggressive Win8/Metro changes.

            If things go as MS hopes, with Metro the new pan-device monopoly, MS can defend aggressive practices as the "new standard", i.e. "but we've always done things this way, ever since Metro started".

            The other big "rent collector" will be the comms companies, who sit as the toll booth between you and your stuff. Much traffic will be machine-generated and outside your control, so comms costs cannot be reduced below a nice fat baseline.

            The sad thing is, we've allowed software vendors to rig the game in their favor, so that quality defects pay off. Originally, software was an ephemeral part of hardware products with no price tag of its own, until Gates scored the coup of reserving separate and independent rights to MS-DOS. Then it was to be considered a real product, to be paid for on a per-unit basis in the same way as the hardware parts of the system.

            I can live with that; you buy an item of software, and any defects in it are fixed by the vendor for free. Already, it's easier for the vendor than making real goods; software "updates" (warranty-fulfillment defect repairs) are downloaded at the user's expense, and can be leveraged to force a tight ongoing relationship with the user ("surrender your privacy else we won't fix").

            These defects have become so ubiquitous, we're obliged to leave the door open to vendors to walk in and "fix" on (their) demand. "Nice house you have here, it would be a shame to see it burn down... ah, I see we left another bottle of petrol behind the fusebox, let me fix that for you... wouldn't it be better if you just left the house keys with us?"

            From there, it's "no, software is a service, not a product". This is great for vendors; it aligns better with the real headache of fixing defects forever, but it also assures payment even if users see no value in "new versions" of your product. Once you lock their data into a "walled garden", they are yours forever, and you no longer have to strive for quality.

            What's even better, is to force a revenue stream even if they use your competitor's product, hence the joy of the platform-vendor's "app store". This, plus communications cost of "the cloud", is an auto-pilot money machine.

            I think we'll end up with the usual equation; folks who do the work for peanuts, most likely under relatively oppressive regimes, while the first-wolders man the turnsties and rake in the dosh. As Chinese consumption power surpasses that of the US, opportunities to "have made, slap on paint and markup, market and profit massively" a la current Apple will go away for the US, if they are irrelevant to the marketing to other larger markets. But if they can own the comms, online stores, and cloud brands, the game can continue.

            Behind the scenes, expect "cloud brands" to outsource the actual hosting to whoever and wherever is cheapest.
            cquirke
          • Absolutely

            They are duplicating Apple's iStore. Both are attempting to control the supply side economics through complete control of the supply. For both companies it is, literally, the "company store" in the tradition of the early 20th century coal mining companies. In addition to taking a large cut of everything sold, it gives them complete control over who can sell what. I'm sure this makes some executives drool, as it gives them a nuclear weapon against piracy and the open source software that their litigation has been unable to stop.

            Also, the 20-30% markup doesn't affect their own products. Apple and Microsoft can easily beat their competition if the competition is forced to sell through the company store. It is clearly an unfair trade arangement. But will the DOJ protect the consumer or Apple and Microsoft? That is the question.

            For my part, it has nothing to do with cost or how much money Apple or Microsoft makes. When commercial software takes my freedom of choice away to the extent that they dictate to me what I may buy or use, I will be using Linux and open source software exclusively. Google may also be making the company store attempt. However, it will be much harder to do with Android, even if the carriers join with them in the attempt. Because it is open source, it is much more readily circumvented.
            Jaybus
          • oh NO !!!

            A company is providing new products because of MONEY, so we will buy them...

            Why would ANY company want to produce products to sell to people..

            What next, Google only selling advertising to make money ??? what type of world are we living in !!!!!!..
            Aussie_Troll
          • Yep and you know this how?

            Fair dinkum Bill, give it a rest! Of course MS asked Developers to start working on Metro apps, no point having Metro with a long term plan. The reason the would ask now is the know it will take years for some of the big applications to be re-written.

            Anyone one this site with half a brain KNOW's it takes a long time to develop and upgrade programs. Looking at a 5 year cycle I'd guess before and major program comes out as a native Metro program. Besides that Win 8 has a desktop which is supported to 2024 or something and Windows 7 is supported till 2020.

            But hey lets not let the truth get in the way of a good story!
            martin_js
          • How Microsoft make money?

            Of course in a way of ecosystem where people had to buy new computer every 3-4 years. New computer, new Windows, new option for MS Office sale. But now things have changed radically. People don't need Microsoft ecosystem. They have good enough computers. Live cycle of many desktops are now more than 10 years. Some decent enterprise computers with higher class components can run easily 12-15 years. With FLOSS and Linux on its problem at all. Just read this one how big business is saving big money:

            "With the deployment of SUSE Linux, BSE has ensured a virus-free environment. In addition to better stability, BSE estimates that it has reduced 50 percent of its cost involved in maintaining and deploying its IT infrastructure."

            http://www.informationweek.in/open_source/13-04-10/bse_slashes_operational_costs_by_adopting_linux.aspx

            Every individual can tell the same story: moving from Windows to Linux means saving money, more stable and secure computing and lots of chance to use free software.

            Yes, we actually we don't need Windows in most cases. Microsoft is redundant player in IT. Only old dogs can't understand this great change.
            MacBroderick
          • A ha

            Which is fine as long as you don't want to use Microsoft Office, or play DirectX video games, which in fact most people do. Those and a myriad other things.
            12312332123
      • MS Must listen to what consumers WANT not what MS thinks they want

        The stake in the coffin will be Microsoft continues to not losten to consumers and force Win8/Win9 crap UI on everyone and not let you turn off the metro crap.
        seascape195@...
        • MS must listen...

          Yep. If that was the case, then Steve Jobs shouldn't have succeeded. He hated market research. He didn't believe in it. He worked on the principle that what worked for him, everybody else would want too.
          genghis7777