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Summary:

The impact of declining desktop and laptop demand on the PC industry became that much clearer this morning, as Microsoft reported lower-than-expected second-quarter earnings driven, in part, by a deterioration of its client PC business (sever software sales are flat) and said it would cut 5,000 […]

The impact of declining desktop and laptop demand on the PC industry became that much clearer this morning, as Microsoft reported lower-than-expected second-quarter earnings driven, in part, by a deterioration of its client PC business (sever software sales are flat) and said it would cut 5,000 jobs. The crappy economy is kicking the desktop PC industry while it’s down. The desktop has been suffering ever since laptops and accessible wireless connectivity started making mobile computing productive; even laptops are seeing their fortunes fall as low-cost netbooks gain an audience.

“Client revenue declined 8 percent as a result of PC market weakness and a continued shift to lower-priced netbooks,” Microsoft said in its press release. Indeed, financial insecurity has consumers not only questioning the need for any new computer, but gravitating toward less expensive options, such as netbooks. Analysts are closely watching to see how sales of Intel’s Atom chip for netbooks affects its higher-margin, full-performance chip business as well. While many of the same hardware players build or make components for netbooks, margins on such products are generally lower and cannibalize sales of more powerful machines.

Intel reported a 90 percent drop in profits last week and with its fiscal first-quarter results, may end up reporting a loss for the first time in 22 years. It’s laying off between 5,000 and 6,000 people as it shutters manufacturing operations to match production with demand. Nvidia expects its sales to drop by 40-50 percent on low PC demand, and AMD is expected to post a bigger fourth-quarter loss than the year before. The bright spot so far is Apple, which yesterday reported earnings growth of 4 percent despite desktop revenues falling 31 percent year over year.

Apple has embraced the mobile computing trend with a line of laptops and its iPhone; it’s also emphasized peripherals with new displays. So far, peripheral items make up almost 4 percent of Apple’s sales. Research firm Technology Business Research notes:

Desktop revenue growth was affected by tightened school district budgets, and spectacular sales in the year-ago quarter, but the main reason for the decrease, TBR believes, is the decline of the desktop PC, especially in the consumer market. Apple signaled the new configuration when it introduced a new display along with its new MacBooks. TBR believes the combination of a stationary display, keyboard and mouse with a mobile PC is the ideal configuration for many users.

Such a configuration could work with either a laptop or netbook. In other words, the era of the desktop PC is quickly coming to an end.

  1. The good news for laptop manufacturers is that laptops endure a lot more wear and tear than PCs, so even though we reached a point where increasing computing power is by and large lost on the average user and not a necessary reason for upgrading, at least laptops/netbooks will need routine replacement.

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  2. Maybe you’ve got a point there. Apple MacBooks had a growth of 34% in their quarterly report. And I am actually one of them, using the new MacBook Pro and the new 24″ LCD monitor at home. But in my business I am still using a MacPro and will probably do so for long.

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  3. Its a little unclear how selling less desktops and more laptops/netbooks effects Microsofts earnings. As long as the end device is running windows doest it really matter? I doubt they charging more on avg for a license of windows on a desktop vs a portable

    For the other players like Intel and AMD there is some effects based on what chips they are putting in the various device types.

    Overall for the hardware guys (HP, Dell, Apple, etc) and MS it should not really matter if the desktop goes away completely. All that matters is total computer sales and margins.

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  4. Stacey Higginbotham Thursday, January 22, 2009

    Kaiyzen, many early netbooks didn’t come equipped with Windows Vista which cuts into earnings. Windows 7 will be better on netbooks, tho. But for the hardware guys, Asus and MSI are winning hearts and minds with their netbooks, while Dell and HP are playing catch up. That means there will be a market share battle on a lower-margin product. Good times.

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  5. @kaiyzen

    Windows Vista licenses are the same on desktop / laptop but Windows XP on a netbook earns Microsoft only half as much.

    Let’s not cry for MSFT – they had over $4 Billion (yes, Billion) of profits in the last 3 months.

    *written on a desktop computer

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  6. So will Windows 7 be priced the same on netbooks as on notebooks/desktops? And can a $300 product really spare another $30 in the cost?

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  7. [...] once again the death and destruction of the desktop is being heralded by Stacey Higginbotham because Microsoft reported lower than expected second quarter earnings. Or to put it in plain [...]

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  8. i don’t fee easy surfing internet in mobile, i think, desktop is desktop, nothing like it.

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  9. Microsoft has already adopted tier-pricing for netbooks. They get to use XP for cheap. They’ll have to do the same with Windows 7 as well. Perhaps they’ll do a special Netbook Edition SKU and strip out Media Center or something to differentiate it. Adding $30 to the cost is fine, but adding $100 (or whatever the supposed retail cost of Windows is) is certainly not.

    You have to remember, netbooks used to all come with Linux, and no one wanted them. For most people, Windows is worth the $30 premium. However, Linux is not so terrible that people wouldn’t deal with it if it meant saving $100 on $200 netbook. Microsoft knows this, and will not price themselves out of the fastest growing sector of hardware sales. That’s something Apple would do, but not Microsoft.

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  10. Yeah, just wait until mobile gets the full size screen later this year – http://www.microvision.com

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