Tablets Take Wind Out of Microsoft's Sales
By Peter Ferenczi | Fri Apr 29, 2011 9:02 am
Microsoft's Windows division today posted a drop in revenue for a second straight quarter, raising suspicions that tablets mean a long-term decline in the PC market.
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Windows revenue fell 4 percent on a year ago, roughly tracking analysts estimates of the drop in PC shipments. Fewer PCs means fewer copies of the Windows OS, Microsoft's staple product.
According to Peter Klein, Microsoft's finance chief, "there are several dynamics at work." A big factor is a drop in consumer demand as netbook sales crater -- they fell 40 percent for the quarter, according to the company.
It's a trend that's likely to continue: Goldman Sachs estimates notebooks sales will slide by 47 million units over the course of this year and next as more people make a tablet their next purchase.
Microsoft itself has been noticeably absent from the tablet platform arena, which is dominated by Apple but includes a growing number of hardware makers fielding devices running Google's Android OS. In March, the company reportedly plans to wait until its Windows 8 operating system is ready in 2012 before wading into the tablet wars.
Windows 8 will begin public testing at the end of this year, according to sources familiar matter. But it may come too late as Apple and Google rushes out increasingly sophisticated products.
That will be a late entry indeed, with competitors potentially rolling out second and third-generation products at the same time, but Microsoft may then be uniquely positioned to offer a full PC-class OS in a tablet.
That could be appealing to consumers -- the market largely shunned netbooks with special operating systems in favor of "full" Microsoft software -- but it will also present the special challenge of optimizing PC-centric software for a very different class of device.
Tablets are almost certainly playing a substantial role in the PC decline. Apple has sold nearly 20 million iPads in a year, and though analyst projections vary widely, all agree that tablets will see sharp growth over the next few years.
Despite the nervous reception of Microsoft's financials, the company performed well as a whole, with profits driven by booming Xbox 360 and Kinect sales, and strong demand for server and business software.
Microsoft's total revenues were $5.2 billion for the first quarter of this year, up from $4 billion a year ago. The increase beat Wall Street expectations, but looks less impressive next to Apple's doubled earnings across the same periods.
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