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Microsoft takes hits after bad PC numbers

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Wall Street analysts piled on Microsoft(s msft) after new research showed how low the PC market could go. On Wednesday, IDC pinned at least part of the blame for bad PC sales numbers on sluggish Windows 8 adoption. Microsoft shipped Windows 8 in November and made a big bet to create Surface, a business-friendly tablet alternative to Apple’s popular iPad(s aapl). Right now, neither of those bets is doing very well.

On Thursday, Goldman Sachs downgraded Microsoft shares to “Sell” from “Neutral” and Nomura Securities cut its call to “Neutral” from “Buy.” The moves came a day after  IDC called the first quarter of 2013 “the worst quarter” ever, with PC sales down 14 percent from the year-ago quarter. (Gartner(s IT) numbers were slightly better: it had PC sales only off 11.4 percent year over year for the quarter.)

“At this point, unfortunately, it seems clear that the Windows 8 launch not only didn’t provide a positive boost to the PC market, but appears to have slowed the market,”  Bob O’Donnell, IDC Program Vice President, Clients and Displays said in a statement. (Full IDC statement here.)

Long-time Microsoft watcher Rick Sherlund at Nomura Securities wrote that the combination of “sluggish” Windows 8 adoption and the “lack of compelling new hardware is disappointing with no relief likely” until later this year when Intel(s intc) releases the new Haswell notebook processor.

As if on cue, the Wall Street Journal (subscription required) reported that Microsoft plans a new 7-inch Surface tablet to come later this year.

Updated: To be fair, for the first quarter, IDC also acknowledged that industry darling Apple(s aapl) also faded. While it did better than the overall U.S. market, IDC said shipments of Apple PCs  slipped 7.5 percent — apparently because more people are opting for iPad tablets as PC replacements.

MSFT Chart

MSFT data by YCharts

This story was updated at 6:54 a.m. PST with Apple PC share decline.

23 Responses to “Microsoft takes hits after bad PC numbers”

  1. Assuming bandwidth: For most people, Android is all they need, especially since they can get it on any screen anywhere with a disposable $79 thumbstick you can carry in your pocket. They can use Google services (or anybody’s, really). It’s familiar, same as what’s on their phone. Similar to Apple or MS, without the hassles and expense and lockin. And you can unlock/modify/hack it to suit your taste. So who needs MS?
    People who need shiny will still need Apple, if they don’t mind the lockin, if the iPhone gets an HDMI connector, if they have the big bucks.

  2. The market is irrational. HP only gets 10% of their profits from PCs where as both Microsoft and Intel get a huge (like 50%) of their profits from PCs.

    HP is down 6.5%, Microsoft is down 5% and Intel is down only 2.3%.

    Out of all three companies HP has the least to lose. In fact maybe it would be best if they just shut down PCs entirely. They surely lost more today in market cap than they will make in profits off of PCs.

    There is really no benefit to being an OEM in the PC business anymore. The market will punish you more than you can earn off of the business and as an OEM you don’t make any good money off of it anyway. OEMs have always lived off the scraps while Wintel got to eat the nice juicy steak.

    Just looking at Microsoft and Intel, I think Microsoft is in far more trouble. Intel will have a competitive chip out this year and can then get in on the smartphone action. If the chip is good enough maybe even Apple would use it. Microsoft on the other hand gets almost all of their profits from Windows and Office. For whatever reason Microsoft refuses to sell Office on Apple and Android. So their entire business is in jeopardy.

    • Marat Kinyabulatov

      MS’s main profit base is enterprise. Enterprise won’t switch to anything else in the next 10 years for sure. As well as office won’t sell less. That’s a fact.

      You’re biased, mister. Please think more global.

      I don’t think that everyone will ditch PC for the sake of tablets. Then the world all of a sudden becomes dumber and slower to operate.

      Please think in a systematical way, because global market is a multifactor connected enterprise itself

      • I agree with jhesr, MS is in trouble. And it is not only PC sales that is hurting them, although that is a big component. There is a number of factors that has all come together at a time where being a fast follower is not good enough.

        1. The lost out on the mobile market, sure they have a new OS and a partnership with Nokia. The problem is that they are not offering anything that great that will make people switch, unless for some very personal reason.

        2. Cloud, the more companies starting to use cloud based services, the more the importance of the OS is shrinking. MS has a lot of windows servers at the enterprise at this moment, in a few years there will be very few. As the importance of the OS is dwindling, the cost of the OS becomes so much more important. And with a large scale cloud operation, the major part of the TCO will consist of licensing cost, not the support cost as is the case in smaller enterprise implementations.

        3. HTML5, Apps are all the rage at this stage, but HTML5 will eventually be the interface that will drive most applications. It will cut the development cost between different platforms and will make it a more suitable strategy. Soon there won’t be a difference between the apps on different operating systems, or different form factors for that matter, they will all be driven from a unified HTML5 interface.

        4. Cheaper options, on my phone I already have 4 alternatives to MS Office. I’m still busy deciding which one I’m going to settle with and will then purchase it, and it will be LOT less expensive than office. Without office and windows as the key drivers for MS, they are kind of a stationary target.

        It will be expensive for companies to migrate off Windows, but if that cost can be obsorbed in the move to a cloud based implementation, it becomes a lot easier andmore attractive option. Kodak was not big enough to fail, MS is not big enough to fail, and will soon be a shadow of its former glory, unless they can pull some magic out of a hat the way Apple did with their i-devices.

  3. Matt Eagar

    MIcrosoft has long been known as a “fast follower”, and that strategy has done well for them in the past. The problem this time seems to be that they aren’t exactly sure which direction to follow. The market was heading toward tablets, so they decided to make their next OS perform more like a tablet. Unfortunately, PCs don’t work like tablets, and trying to shoehorn them in has just made people run away that much faster.

    Personal computer sales are off and will continue to decline for some time (though I doubt the drop will be as dramatic in the future). However, the PC as a tool will not go away completely, because there are still some things to which PCs are better suited. Microsoft should be delivering software that makes the PC as good as it possibly can be. And they should be in the tablet space, too. I just don’t think they should try to make tablets and PCs work the same way, because they are different devices for different purposes and therefore require different interfaces. I’m sure this is clear to Microsoft now, but not realizing it earlier is certainly a misstep.

  4. IDC says Apple down by 7.5% in Mac sales while Gartner says Apple is up 7.4%. I’m thinking that even though Apple sold less Macs year over year during the last quarter, when coupled with how sucky Win8 is – that they sold 7.4% more!
    I jest. Win8 isn’t that bad on a touch friendly tablet, even though I personally don’t think it is as good as other tablet operating systems, but on regular keyboard and mouse desktops and laptops – awful.
    As for the number of Macs sold, looks like we won’t know for sure until April 23rd when Apple releases its quarterly statement. Yet, I think it is safe to say the number went down and not up – not as bad as HP and Dell though.

  5. Randy Bobandy

    David, finding notepad is as easy as typing “notepad” on the Metro interface. That being said, there are a few dozen free Start menu replacements, or if you want the best one it is a whole 5 bucks from Startdock…. Start8. People just do not like change and will not even put a half an hour into learning something they think they already know. Granted I believe MS should have given the user a choice of a classic interface, but the fact is Windows 8 is not a bad OS, just different is some aspects…. I actually think, and benchmarks show it performs better than Windows 7.

  6. Have you ever personally tried to use Windows 8? If you can answer yes, how did you like it? Now you have your answer why the PC sales are plummeting. We needed to purchase 5 new PCs for our office. Couldn’t find new ones without Windows 8, so we bought older ones. Why? I purchased a Windows 8 pc for my home. Worst decision we ever made. All you have to do is sit down at it and your frustration and stress levels go through the roof. Want to open NotePad, start searching online to figure out where Microsoft decided to hide it. Oh wait, you need to open explorer or firefox, first you have to figure out how to do that……

    • Oh c’mon. Really? Press the Windows key and type notepad and hit Enter. The problem isn’t with Windows 8. The problem is (and will always be) with the end user’s lack of adoption and resistance to change.

      I can show you a video of a 3 year old using Windows 8 with ease.

    • I’ve tried Win 8 at work and I didn’t like it. The tile interface… I just don’t like it. Maybe some people love it but I don’t care for it. I also didn’t like how it was a mish mash of metro UI and then the old style win 7 type interface. It made it harder to get comfortable with it.

      This was a Win Surface RT that I played around with. I’ve also used an ipad and an android tablet. I prefer both of those to the Surface RT.

      I have not tried Win 8 on a PC but I think it would be pretty bad. I don’t see any reason why I would want to use touch on a PC. I also don’t think the metro interface will work well with a standard mouse and keyboard. So I think it is a losing combination to put Win 8 on a PC. It makes sense on a tablet for the most part, but I just didn’t care for the “style” of it.

  7. This has been known for some time. With more people then ever using their tablets and phones as primary sources of communication and web access, PC numbers have been slacking. Nothing new.

    • Jon Reade

      Let’s leave vendors out of this. Noted there that you said “communication and web access” – and that is precisely the problem with *any* sort of tablet, regardless of the maker or OS, they are pretty much only good for these two tasks – web browsing and short emails/Skyping. Try manipulating a spreadsheet, coding, or writing a long document on a tablet and see how uncomfortable and irritating it gets. They are great at what they are, for some specific purposes. They help you easily communicate on the move. But they are not great at the vast majority of work most people perform most of the time 9-5. Until someone comes up with a better user interface than the mouse and pointer, PC and Mac sales will pick up again – and they’ve always been cyclical intra-versions. Forecats of its death are greatly exaggerated.

      • Marat Kinyabulatov

        Yeah, I perfectly understand that. But PC market is oversaturated.
        We got around 1.5 billion PCs with 1.3 billion windows copies in the world. No ipad can match this.

        My 2006 machine runs win8 perfectly, so why buy a new hardware (or even OS), if winXP / win7 is enough for most of the people.

        That;s the main problem: win8 both has lower requirements and old computing generation is ok with the new software. Something you can’t do with 1st gen ipad, as an example.

        +, as I state, ipad is just a toy, I can’t work productively on any tablet, except win tablet with keyboard and hdmi. But macs and pcs are perfect for that