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Gloomier PC forecast means more trouble for Windows

Gregg Keizer | May 29, 2013
But Microsoft has plenty of 'cards to play' to maintain overall revenue, says analyst

"[People] are putting a premium on access from a variety of smaller devices with longer battery life, an instant-on function, and intuitive touch-centric interfaces," added Loverde in a statement that accompanied the revised forecast. "These users have not necessarily given up on PCs as a platform for computing when a more robust environment is needed, but this takes a smaller share of computing time, and users are making do with older systems."

That's not good for Microsoft. Although the Redmond, Wash. developer continues to push its way into tablets—through its own Surface devices and those by its OEM partners— the bulk of Windows revenue still comes from equipping desktop and notebook PCs with licenses.

An 8% drop in PC shipments during 2013 would, assuming Windows sales mimic that exactly, mean a $1.4 billion hit to Microsoft's revenue for the calendar year. (For the calendar year 2012, Windows revenue contracted by about 5% from the year before, closely matching the 4% decline in PC shipments pegged by IDC.)

But a knock that hard is unlikely, Loverde suggested. "Microsoft has a number of cards to play," he said, pointing out the growing revenue of its Server and Tools division, an expectation that sales of Windows 8-powered and Office-equipped "slate"-style tablets will increase, and that Office will not mirror Windows' decline, as three of those cards.

"This shift [in computing] will not undermine the Office franchise," Loverde said, citing Microsoft's ability, if it wanted, to monetize Office online and expand the suite's footprint on tablets. Most analysts believe Microsoft could, for example, reap significant revenue by releasing Office for Google's Android or Apple's iOS, or by tying tablet editions on those platforms to its Office 365 subscription programs.

"We've taken expectations down," said Loverde. "It is a bit sobering. We look at technology as a growth area, and so we think PC [sales] should continue to grow. But this is a major disruption, and a complete change of the landscape."


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