Microsoft's Windows revenues plunge 30%

Says dramatic drop caused by $1.7B added to same quarter in 2009 for free upgrades to Windows 7

Revenues from Windows plummeted 30 per cent last quarter compared to the same period the year before, Microsoft said on Thursday.

But in an earnings call with Wall Street analysts on Thursday afternoon, Microsoft said that revenues from the Windows group actually increased by three per cent. It called that "in line" with the quarter's global PC sales growth.

Windows revenues fell 30 per cent from the same quarter in 2009 when the spike and deferred upgrade income is accounted for.

The difference in the two numbers was due to the inflated revenue in the comparative quarter -- 2009's fourth -- which had been boosted by a Windows 7 pre-launch "spike," and by the US$1.71 billion in revenue that had been deferred to account for the free upgradesMicrosoft gave customers who bought Vista in the months just before Windows 7 debuted.

When the spike and deferred income revenues in 2009's fourth quarter are discarded, Microsoft said, Windows' revenues of $5.05 billion inched up that three per cent from last year's $4.92 billion.

Four quarter revenues were five per cent higher than the $4.79 billion in 2010's third quarter.

Rob Helm, an analyst with Directions on Microsoft, tried to explain Microsoft's accounting.

"When the launch 'spike' and the deferral are both ignored, Windows revenues climbed three per cent," said Helm. "When just the spike is ignored, Microsoft took a five per cent hit."

Only when both the spike and the deferral are included does the balance sheet show a 30 per cent decline, he added.

Helm said that the Windows 7 launch spike boosted 2009's fourth quarter by $560 million. "My guess is that it's a matter of computer manufacturers buying a bunch of extra licenses then, anticipating the launch of Windows 7, and increased PC sales," he said.

But the number to focus on is "three per cent," the year-over-year increase in Windows revenues when all the deferred and spike-driven income is tossed aside. "It just shows how tightly Windows 7 sales are yoked to PC sales," Helm said. "When the PC market slows, so does Windows."

Earlier this month, both Gartner and IDC estimated global PC sales had climbed about three per cent -- Gartner said 3.1 per cent, IDC said 2.7 per cent -- in the last three months of 2010 compared with the same timeframe the year before.

Microsoft noted several times that consumer PC sales slowed dramatically last quarter, adding that netbook sales had been particularly soft. Business PC purchases, however, were up. And Windows' sales reflected those trends.

"Netbook sales were eaten away to some degree by the iPad , and consumer PC sales slowed," Helm said. "What saved the company was that businesses are in the midst of a massive upgrade cycle."

No matter what the ledger book said, Microsoft continued to tout Windows 7's success, announcing today that it had sold more than 300 million licenses since the October 2009 launch.

The last time Microsoft talked about Windows 7 sales was in late October 2010, when it said it had sold 240 million licenses .

The 60 million copies sold since then translates into a pace of about 7 licenses per second, down from the 8.4 licenses per second between July 21 and October 12, 2010, as well as off the 9.97 licenses per second sold during a 29-day stretch from June 23 to July 21, 2010.

Helm again pointed out that sluggish PC sales means just-as-sluggish Windows revenue growth. "Windows lives and dies by the PC market," he said. "And the PC market is seeing some impact in the consumer space from the iPad."

Although Microsoft did not mention the word "iPad" during the earnings call, one analyst asked about tablets and their impact on PC sales.

"Over the course of this year, some of the [netbook] volume has been replaced with other devices, including ultra-notebooks and tablets," said Peter Klein, Microsoft's chief financial officer.

Overall, Microsoft pegged its revenues at $19.85 billion , a record for the October-December quarter.

Sales from the company's Entertainment and Devices division, helped immensely by the success of Kinect and its halo effect on the Xbox 360 game console, grew by a whopping 55 per cent, the best showing of any Microsoft group.

"I'd say Microsoft had a strong quarter considering what's going on in the PC market," Helm said.

Join the newsletter!

Or

Sign up to gain exclusive access to email subscriptions, event invitations, competitions, giveaways, and much more.

Membership is free, and your security and privacy remain protected. View our privacy policy before signing up.

Error: Please check your email address.

Tags IT industryMicrosoftoperating systemssoftwarePCsWindowshardware systemsdesktop pcs

Keep up with the latest tech news, reviews and previews by subscribing to the Good Gear Guide newsletter.
Gregg Keizer

Gregg Keizer

Computerworld (US)
Show Comments

Brand Post

Shining a light on creativity

MSI has long pushed the boundaries of invention with its ever-evolving range of laptops but it has now pulled off a world first with the new MSI Creative 17.

Most Popular Reviews

Latest Articles

Resources

PCW Evaluation Team

Tom Pope

Dynabook Portégé X30L-G

Ultimately this laptop has achieved everything I would hope for in a laptop for work, while fitting that into a form factor and weight that is remarkable.

Tom Sellers

MSI P65

This smart laptop was enjoyable to use and great to work on – creating content was super simple.

Lolita Wang

MSI GT76

It really doesn’t get more “gaming laptop” than this.

Jack Jeffries

MSI GS75

As the Maserati or BMW of laptops, it would fit perfectly in the hands of a professional needing firepower under the hood, sophistication and class on the surface, and gaming prowess (sports mode if you will) in between.

Taylor Carr

MSI PS63

The MSI PS63 is an amazing laptop and I would definitely consider buying one in the future.

Christopher Low

Brother RJ-4230B

This small mobile printer is exactly what I need for invoicing and other jobs such as sending fellow tradesman details or step-by-step instructions that I can easily print off from my phone or the Web.

Featured Content

Product Launch Showcase

Don’t have an account? Sign up here

Don't have an account? Sign up now

Forgot password?