Embedded in Microsoft's earnings report and restructuring news was an implicit message that's hard to ignore: Netbooks are disruptive and wreaking havoc in the industry.
On the surface, Microsoft's earnings report (initial take, statement, Techmeme) had a bevy of bad news. Earnings were short of expectations. Microsoft "is not immune" to the economy. And PC demand was weak.
But once you dig a little deeper you notice that Microsoft's business units actually held up well (click right to enlarge). We're not talking massive declines. In the enterprise, Microsoft delivered solid results. For instance, the server and tools unit had revenue of $3.74 billion, up from $3.26 billion a year ago. Microsoft's business division had flat revenue. Online services lost money--again--but that hardly shocks anyone.
And then you get to the client side of the house. Revenue was $3.98 billion, down from $4.33 billion a year ago.
The cover story is obvious. PC demand stinks. That means less Vista. That means Microsoft's margins are crimped. But the big issue is netbooks. (See Mary Jo Foley's Microsoft blames netbook appeal, marketing costs for Windows drop.)
The good news for Microsoft: XP is riding shotgun on netbooks in most cases. The bad news: Microsoft doesn't get as much dough.
Is it any wonder that Windows 7 has netbooks in mind too?
These lower priced netbooks are going to be the bane of Microsoft--and probably Intel too. Intel has to sell a lot more Atom chips just to bring home the profits the rest of its chip lineup provides. Intel's story is that netbooks are incremental. Maybe.
Techies step back and marvel at the creative destruction at hand here. Intel and Microsoft are potentially cannibalizing their own businesses. That's wonderful for netbook fans. As a business decision it's questionable. Of course, Microsoft has no choice. XP on netbooks is better than the alternative--Linux.
Watching the Microsoft results also brings home another key point. Apple reportedly doesn't get the netbook market. But if your business shtick is being a premium brand why would you bother with cheap PCs. Apple's decision to ignore the netbook may look better with each passing day.