Microsoft weathered the storm of Windows Vista, 2007's often-abused operating system, an analyst said today after reviewing the company latest earnings.
"At this point it appears Microsoft has put Vista behind it," said Allan Krans, an analyst with Technology Business Research. "People may not have been happy with it, but there were limited choices. For consumers, Vista was the default, and for businesses, they may have delayed buying new machines, but they will still pay Microsoft at some point."
Microsoft's financial performance for its fiscal third quarter, which ended March 31, and the fueling of its earnings by Windows 7 , makes his point that the company's survived the dark days of Vista, Krans continued. "The best case scenario for Microsoft was to retain its leadership position, and results indicate it's done just that," he said. "It speaks to the power of the market for Windows."
On Thursday, Microsoft reported net income of $4.01 billion, up 35% over the same period the year before, on revenue of $14.5 billion, up 6%.
Windows 7 sales drove the increase, said Peter Klein, chief financial officer for the company. "Strong demand for Windows 7 is a primary contributor to our performance," Klein said during a conference call with Wall Street analysts Thursday afternoon.
Sales of Windows to consumers were especially brisk, with unit numbers up 35% year-over-year, while business licenses were up over 15%. Klein called Windows 7 Microsoft's "fastest-selling operating system ever," and claimed that 10% of the world's PCs are running the new OS.
Microsoft didn't say how it came to that number, only citing both internal and external checks. But the number jibes with that of Web metrics vendor NetApplications, which measures operating system usage share by tracking a pool of some 160 million monthly unique visitors to the sites it monitors. According to NetApplications, Windows 7 accounted for 10.2% of all operating systems by the end of March.
"It's simply difficult to get around Microsoft," observed Krans, who wasn't surprised by the year-over-year jump in Windows 7 sales to consumers. Rather than attribute that licensing increase to Windows 7's quality -- which has received mostly positive reviews -- he said it was directly tied to the upswing in PC sales.
"Its performance was largely driven by the underlying PC market," Krans argued. Although both consumers and businesses may have postponed buying new PCs during much of Vista's reign, they appear to be back in the buying mode. PC purchases were up an industry-wide 25%, Microsoft said, with consumer PC sales up 30% and business PC buying up 14%. Microsoft used the estimates to boast that increases in Windows license sales exceeded both those numbers.
"The wave of technology refreshing is lifting Microsoft's boat, along with the PC OEMs," said Krans.
Krans' point has been reinforced by data from NetApplications. Since Windows 7's release in October, Windows XP has lost more than twice as much share to Windows 7 than has Vista, illustrating that XP users who held onto their old PCs were especially eager to buy new machines.
But that also means that Windows 7's rapid growth is probably not sustainable, Krans said. "Once the wave of recession-borne pent-up demand is gone, hardware unit shipment rates are likely to settle into more typical single-digit growth patterns, taking double-digit Windows revenue growth with them," he said.