Overall M$ had a fine last quarter, but one of the cash cows has run dry, the desktop operating system. Revenue was down 6% and income was down 11% for the client division. M$ repeats, “Windows Division revenue is largely correlated to the PC market worldwide, as approximately 75% of total Windows Division revenue comes from Windows operating system software purchased by original equipment manufacturers (â€œOEMsâ€) which they pre-install on equipment they sell. The remaining approximately 25% of Windows Division revenue is generated by commercial and retail sales of Windows and PC hardware products and online advertising from Windows Live.” but shipments of PCs were flat not down according to IDC. This is a real downturn in M$’s business, separate from the world economy of PCs.
What hurt M$ in this segment is that XP is no longer generating revenue for them and half their end users run XP. Also, the number of PCs shipping with “7” is only about 50 million per quarter, far less than the 90 million shipped. The monopoly is seriously weakened and has no prospect of new life. The world wants small cheap computers which are selling with double digit growth quarter after quarter. Worse yet, for M$, is that the shortage of hard drives from Thailand will now kick in and could affect the whole of 2012. Not enough people can even buy the obsolete technology even if they wanted it.
The shifts in the market for PCs will cause more organizations to use thin clients and smart thingies which don’t require hard drives. OEMs and retailers, normally “partners” of M$ will be shifting to other technology long before “8” arrives. They cannot afford these drops in income because their margins are much smaller than M$’s. This will compound M$’s decline because a feedback loop has started. Very few PCs running M$’s stuff were sold at Christmas and the retailers are way behind. They know they can sell Android/Linux on ARM and will be seeking other things to sell like GNU/Linux on ARM and x86/amd64 to increase their margins. M$ will be cut out of the market by their inefficiency.
ZDnet has a story that includes this information:
“Microsoft has sold over 525 million Windows 7 licenses since launch”
Wow! Let’s see, October 22, 2009 until December 31, 2012 is 9 quarters. They sold 525/9 = 58 million licences per quarter when the world is shipping 90 million PCs per quarter. No wonder they’re doing so well in the client division.