Microsoft reported a reassuringly solid quarter in tough times on Thursday, but its Windows business looked weak.
The big Windows unit reported a 2 percent rise in revenue and 4 percent decline in operating income. That is well below the norm for Microsoft’s lucrative personal operating system business — and well below the company’s stellar performers like server software, up 20 percent, and the Office unit, up 23 percent.
The Windows problem? It is not selling enough of its Windows Vista software, the operating system introduced in January 2007. In the conference call Thursday afternoon, Christopher Liddell, Microsoft’s chief financial officer, said the mix of Windows sales had tipped more toward low-cost PCs in both mature and emerging markets, which come with lower-margin versions of Windows and often not Vista.
The notable new thing in low-priced PC market is the netbook category — smaller PCs with scant memory and intended mainly for surfing Web sites and handling e-mail, costing as little as $300. Mr. Liddell acknowledged that some of the growth in netbooks is “cannibalization” of sales of traditional PCs.
The netbook challenge to Microsoft is two-fold. First, if they run Windows, the machines run a slimmed-down version of Windows XP. Charles Di Bona of Sanford Bernstein estimates that Microsoft pockets $30 to $35 on a netbook. By contrast, he figures that the operating system license fee on a standard consumer PC, running Vista, is about $70. The second netbook issue for Microsoft is that many of those machines run the Linux operating system. (Mr. Di Bona’s Bernstein colleague, A.M. Sacconaghi, estimates netbooks accounted for that 4.5 to 5 percent of the 10 to 12 percent unit growth of PC sales in the September quarter.)
Corporations, Mr. Di Bona said, have not upgraded to Vista as widely or as quickly as they have tended to with past Windows operating systems. Now, with the economy troubled and corporate technology budgets squeezed, Vista’s successor stands in the wings. Microsoft has said that Windows System 7 will ship by late next year.
“You don’t have a lot of Vista left,” Mr. Di Bona observed. “Vista could become a placeholder.”
Whatever Vista’s ultimate fate, a closer look at the quarterly numbers also provides a reminder of why Microsoft will do anything corporately possible to keep the Windows franchise healthy as long as it can. The numbers behind the anemic 2 percent growth in sales and the 4 percent slip in profits: $4.22 billion and $3.27 billion, respectively. Huge quarterly numbers, and a 77 percent profit margin. Welcome to the economics of a dominant software franchise.
Source : http://bits.blogs.nytimes.com/
The big Windows unit reported a 2 percent rise in revenue and 4 percent decline in operating income. That is well below the norm for Microsoft’s lucrative personal operating system business — and well below the company’s stellar performers like server software, up 20 percent, and the Office unit, up 23 percent.
The Windows problem? It is not selling enough of its Windows Vista software, the operating system introduced in January 2007. In the conference call Thursday afternoon, Christopher Liddell, Microsoft’s chief financial officer, said the mix of Windows sales had tipped more toward low-cost PCs in both mature and emerging markets, which come with lower-margin versions of Windows and often not Vista.
The notable new thing in low-priced PC market is the netbook category — smaller PCs with scant memory and intended mainly for surfing Web sites and handling e-mail, costing as little as $300. Mr. Liddell acknowledged that some of the growth in netbooks is “cannibalization” of sales of traditional PCs.
The netbook challenge to Microsoft is two-fold. First, if they run Windows, the machines run a slimmed-down version of Windows XP. Charles Di Bona of Sanford Bernstein estimates that Microsoft pockets $30 to $35 on a netbook. By contrast, he figures that the operating system license fee on a standard consumer PC, running Vista, is about $70. The second netbook issue for Microsoft is that many of those machines run the Linux operating system. (Mr. Di Bona’s Bernstein colleague, A.M. Sacconaghi, estimates netbooks accounted for that 4.5 to 5 percent of the 10 to 12 percent unit growth of PC sales in the September quarter.)
Corporations, Mr. Di Bona said, have not upgraded to Vista as widely or as quickly as they have tended to with past Windows operating systems. Now, with the economy troubled and corporate technology budgets squeezed, Vista’s successor stands in the wings. Microsoft has said that Windows System 7 will ship by late next year.
“You don’t have a lot of Vista left,” Mr. Di Bona observed. “Vista could become a placeholder.”
Whatever Vista’s ultimate fate, a closer look at the quarterly numbers also provides a reminder of why Microsoft will do anything corporately possible to keep the Windows franchise healthy as long as it can. The numbers behind the anemic 2 percent growth in sales and the 4 percent slip in profits: $4.22 billion and $3.27 billion, respectively. Huge quarterly numbers, and a 77 percent profit margin. Welcome to the economics of a dominant software franchise.
Source : http://bits.blogs.nytimes.com/
