Grim Reaper Gartner Taunts Windows 7
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News Analysis. Gartner predicts steep declines in PC shipments this year. That can't be good for Windows 7. |
[Editor's Note: I'm playing catch-up from the stomach flu. Most March 2nd posts will be shorter than usual and more response to current events than my more typical forward-looking analyses.]
Now Microsoft can worry. In January, I posted a lengthy analysis that offered some hope for Microsoft's Windows client business. The reasoning: PC sales declines were smaller in 2008, during economically tougher times, than during start of the 2000-2001 recession.
No longer. Today, Gartner forecast that year-over-year PC shipment declines would be steeper in 2009 than they were in 2001—11.9 percent compared with 3.2 percent. As bad as that news is, it gets even worse for Microsoft. Because OEM inventory management is better than eight years ago, channel inventories are at record lows. Lower numbers of PCs shipped into the channel mean fewer Windows license sales for Microsoft.
Bad as that is, matters are even worse. Mininotebook (aka netbook) shipments are expected to grow dramatically this year. Right now, most of these portables ship with Windows XP Home, for which Microsoft collects much lower fees and makes smaller margins than "premium" Windows Vista editions.
Gloom over Windows 7
The economic PC gloom casts a long shadow of uncertainty over Windows 7's imminent launch. There's a bit of repeating history, too. Windows XP also launched, in October 2001, during a recession. Looked at one way, it's a bad year for Microsoft to launch a new Windows version. PC shipments are plummeting. But looked at another way, Windows 7 could give PC sales a badly needed lift.
Gartner predicts that this year's decline would be the steepest in history, equally hitting emerging and mature markets. As recently as early November, emerging markets appeared to be largely resistant to the economic crisis sweeping the United States and Europe. Microsoft could at least count on emerging markets, where PC sales were stronger anyway, to offset declines in mature markets. No longer.
Gartner predicts that in 2009 PC shipments will decline 13 percent in mature markets and 10.4 percent in emerging markets. Previous lows: 7.9 percent in 2001 for mature markets and 11.1 percent in 2002 for emerging markets. My prediction: Microsoft will see rising piracy rates with falling PC sales, further whacking Windows license shipments.
Different drivers in both markets will lead to the same destination: longer PC replacement cycles. "The impact of reduced replacements will be especially acute in mature markets, where replacements are estimated to account for around 80 percent of shipments," George Shiffler, Gartner research director, said in a statement.
The question to ask: Will Windows 7 drive PC sales, regardless? It's already clear that many enterprises delayed PC refresh cycles because they didn't want Windows Vista, which only 10 percent of businesses had adopted by the end of 2008. As recently as September, Microsoft and its OEM partners could reasonably look forward to a healthy business refresh starting in the second half of the year. Now there's doubt how many IT organizations will further delay new PC deployments—for good reasons, and some that go beyond budget cuts. Looming bankruptcies and layoffs are reasons enough for delays, too.
Misplaced Optimism
The optimism I expressed in January is now fantasy. I based my analysis then on analysts' released numbers and projections. PC shipments were about the same as 2000, but during now worse economic conditions. That brings me to a little more depth on the other two aforementioned Windows license sales problems: Lower inventories and mininotebook sales.
"In the fourth quarter of 2008 vendors saw signals that demand was weakening and sent signals up the supply chain to stop building," Charles Smulders, Gartner managing vice president, said in a statement "At the same time, the channel cut back inventory due to a combination of economic uncertainty and the credit squeeze."
The difference that matters: "Unlike 2001, vendors were able to react relatively quickly to the signals and push the inventory risk on to the component suppliers. We expect the pattern of stronger sell out demand than sell in to continue through the first half of 2009, with the channel choosing to hold inventory at historically low levels."
I remember what happened in 2000-2001. Sales dropped faster than OEMs could accommodate, leading to bulging channel inventories. Today's greater inventory control is good for OEMs, but bad for Microsoft. Already, during the fourth quarter, Windows Client revenue declined by 8 percent and operating income by 13 percent. Eighty-one percent of Window Client revenue comes from OEM sales. If PC manufacturers ship less product into the inventory, Microsoft sells fewer software licenses.
"Historically low levels" of inventory "through the first half of 2009" is sure to negatively impact the second half of Microsoft's fiscal year, which ends June 30. The big hit is obvious: Window Client. But Microsoft's Business division will likely feel the pain, too.
Office Will Hurt, Too
Last week, Microsoft CEO Steve Ballmer told financial analysts: "Non-annuity customers primarily will upgrade by buying new PCs. That's a historic truth. Most people do, in fact, choose to get a new PC when they upgrade the operating system. It is the minority who upgrade the operating system in corporations without getting a new PC."
About 19 percent of Windows sales come through annuity licensing contracts and about 40 percent for Office.
"In both cases we are somewhat dependent on PC sales cycles," Steve told financial analysts. Office's exposure is less than Windows, but perhaps more than the annuity contract numbers suggest. Steve also explained Office sales breakdown: About a third for each category of business, consumer and education. IT organizations offer Microsoft the biggest revenue bang, and education the least. I expect spending declines in both categories, but for different reasons. Declining budgets will affect both categories, while universities have unique problems, such as funded endowments that are untappable because of state rules governing historical levels.
There's still the mininotebook category, about which I've written plenty. Gartner forecasts that the worldwide notebook shipments will actually grow in 2009, up 2.7 percent from 2008. When mininotebooks are added in, portable shipment growth jumps more than three times to 9 percent. It's a category for which Microsoft is ill-prepared unless Windows 7 ships. Mininotebooks generate less Windows license revenue than notebooks and slimmer margins, too.
Wrapping up, Gartner might as well be Microsoft's grim reaper. The analyst firm has got lots of bad news, even considering Windows 7's expected 2009 launch.
[Please send your tips or rumors to watchtips at gmail.com.]
Related Posts:
- The Windows Empire Strikes Back, Microsoft Watch, Feb. 19, 2009
- Netbook Sales Soar in Europe, Microsoft Watch, Feb. 17, 2009
- Netbook Sales Lift Windows XP Home Share, Microsoft Watch, Feb. 5, 2009
- What 2008 PC Sales Mean for 2009, Microsoft Watch, Jan. 15, 2009
- Can Microsoft Blame Netbooks?, Microsoft Watch, Jan. 26, 2009
- How Grim Is Microsoft's Future?, Microsoft Watch, Jan. 22, 2009
- Microsoft Q2 2009 by the Numbers, Microsoft Watch, Jan. 22, 2009
- Microsoft Knuckles Down for Hard Times, Microsoft Watch, Jan. 22, 2009
- Vista: Now Microsoft Can Blame the Economy, Microsoft Watch, Dec. 10, 2008
- Are Telco Subsidies Coming Back?, Microsoft Watch, Dec. 9, 2008
- What Happens If Microsoft Warns?, Microsoft Watch, Dec. 8, 2008
- Does Windows Have a Future on Netbooks?, Microsoft Watch, Dec. 7, 2008
Comments (17)
Steve Ballmer reminds me of those fictional villains from the James Bond series of motion pictures.
If a villain was content to enjoy his fabulous wealth, riding his personal jet around the world to his private island resorts with more beautiful young women than he could possibly handle, he would not make a very good movie plot, but he would be a much happier and long-lived person. Or if fictional analogies don't do much for you, think Hugh Hefner.
But Steve Ballmer, as were the fictional James Bond villains, is not content to quietly and peacefully exist as one of the wealthiest men in all of the world. He is driven to conquer the world and enslave its people. He is driven to push Microsoft toward the unattainable goal of 100% market share, and to push without regard to the cost.
I understand Lou Gerstner's greed and Sam Palmisano's greed. They were only employees of IBM and, while very high ranking and powerful, needed to loot as much as they could to assuage their egos and desire for vast wealth. But Steve Ballmer already owns much of his empire and doesn't need to loot it. So why does he feel the need to loot the world more than he already has?
And why do shareholders continue to support Microsoft like they do? Why do they hang onto a dream of 25% yearly growth instead of being content with a multi-billion-dollar Rock of Gibraltar company that has enough power to keep its monopoly intact and the cash flowing in without the need to grow wildly?
To entertain us? It's my only guess.
Posted by Philosopher | March 2, 2009 4:47 PM
I think the stock market is already discounting any huge benefits from Win7. MS set a new 52 week low today. Their 5 year stock price graph looks terrible. I think after some initial good reviews, ie Win7 wasn't nearly as bad as Vista, the truth is beginning to sink in. This really is just a Vista Service Pack, and a lot of the bad things are amplified like DRM and version proliferation.
Meanwhile the netbooks have wittled away at Windows, but office will be next. People are choosing lighter, cheaper, more portable PCs with longer battery life, over something that runs Vista/Office. These new netbooks really do fit in a purse, fit on an airplane dinner tray. Their batteries really do last a long time. And running Linux/FireFox/Open Office is pretty much the same as running Windows/IE/Office. These items are really just commodities now.
I think the thing is to just be careful we don't get hit by the thrashing tail of the dying dinosaur.
Posted by smist08 | March 2, 2009 4:56 PM
On this occasion I suspect Gartner is correct in its predictions. I wonder if anyone keeps a scoreboard on Gartner, Forrester etc - I'd be suprised if more than 33% of what they predict eventuates.
The motivations that compelled upgrades from Win95->Win98->Win2000->XP were -- #1, desire for stability (< BSOD's), #2, the increased demands of applications, #3. improved hardware performance, these factors drove corporates into replacing their desktop systems about every 3 years.
However since the first half of this decade desktops have become like refrigerators, having a life expectancy of at least 5 years, if not longer. Also in the last replacement cycle many corporate buyers purchased upgradeable desktops; now they can add more memory, replace processors, disks and monitors as needs demand, without changing the system box. Now many corporates are or are planning to migrate their desktops to virtual thin client systems.
The shift in corporate desktop management practices and the success of the netbook in the consumer is a double blow to Windows sales.
@smist08 - Office & OOo are much the same for the consumer, but not for the corporate user. Many corporations use Office documents (mainly Word & Excel) to exchange information with suppliers, customers and service suppliers, secondly they've integrated Office into their LOB applications.
Yes, you can use OOo to do both of those things. However injecting OOo into a community of independent collaborating Office users increases complexity and hence the cost of fixing problems as and when they arise, which they inevitably do, regardless of the presence of OOo.
Finding people with the skills & experience needed to integrate Office with an IBM z/OS application is hard enough; finding people with the skills & experience needed to the same with OOo is, in many parts of the world, practically impossible. This may not be the case in the EU where Napoleons Ghost may have issued fiats mandating the use of OOo!
"Napoleons Ghost" - the body of non and barely elected despots who perambulate en-masse between Brussels, Strasbourg and Luxembourg, issuing decrees on how citizens ought live their lives; aka known as the "Spirit of Louis X1V".
Posted by RightPaddock | March 2, 2009 7:20 PM
Joe, for the n'th time, could you please define what YOU mean by "mini notebook" as in
"Mini-notebooks generate less Windows license revenue than notebooks and slimmer margins, too"
I think of a mini-notebook as having a small size (12-13" screen), weighing less than 1.5Kg, with 100G disk, 2G RAM, support for external peripherals (keyboard, monitor, USB, mouse etc); i.e. a fully functional notebook but with a smaller footprint and a lot less weight; and bigger price.
A year ago I paid about $3,500 for a Toshiba Portege (by my def'n a mini-notebook) system with Vista Business and Office 4 Business. 6 months later I purchased a no-brand desktop with the same software for about $1,600. Are you saying that MS would have made less on the Tosh than on the desktop - I find that difficult to believe, both systems have the same OEM licenses for same products.
NB prices are in Aussie dollars and include extended warranty, docking stations, external hard disks etc, etc.
Posted by RightPaddock | March 2, 2009 8:01 PM
You could also say "Grim Reaper Gartner Taunts Apple". Mini-notebooks are the only growth category, and Apple doesn't make any.
Posted by JohnJ | March 2, 2009 9:22 PM
So little time so much bull. Yes, 2009 will suck as far as pc sales go. But 2010 could be one of the best years for PC sales in this decade. Think about the benefits of buying a PC in 2010
1) Low power high peformance green chips.
Just think of all the businesses that leave there computers on 24/7.
2) Solid State Disk drives
3) Blue Ray Disk Players
4) Next generation Operating systems
5) More Energy efficent LED displays
Posted by Fear Central | March 3, 2009 12:00 AM
“It's a category for which Microsoft is ill-prepared unless Windows 7 ships. Mini-notebooks generate less Windows license revenue than notebooks and slimmer margins, too.”
Precisely. And how do you expect that to change once Windows 7 ships?
Posted by Lawrence D'Oliveiro | March 3, 2009 1:13 AM
The economy will get much worse before it gets better. Tax rates are going up on businesses and the organizations will have even less money for new equipment/software in a stagnating business environment. It is now the worse economy since the 1970s.
Posted by FreeLaptop | March 3, 2009 1:09 PM
"You could also say "Grim Reaper Gartner Taunts Apple". Mini-notebooks are the only growth category, and Apple doesn't make any."
Ballmer's recurring nightmare:
Apple releases an OEM version of OS X that runs great on netbooks. It comes with Outlook support, the iLife suite and plays nice with Windows servers.
It would only be a toe in the water for Apple, but for Ballmer (and Linux) it would be a kick in the ass. He can't afford to lose any more Windows market share at the margin.
Posted by henry | March 3, 2009 1:17 PM
Apple?? If you think Apple will jump into netbooks, you’re dreaming. They’re in the same boat as Microsoft—low-margin products are a hazard to their bottom line.
Posted by Lawrence D'Oliveiro | March 3, 2009 6:26 PM
Windows Seven will be delivered stillborn, during this economic depression. Vista7 will not have any more value over the old version. It will not take long for users to which for something else, and it will become shunned in the same way as Vista before it.
There is no real value in Seven over Vista or XP. The only value is to MS, in that it extracts more money from users, selling the same old tired code with a few IU changes.
Now there might have been some value, had MS concentrated on the main problems of Windows and tried to fix those, such as the malware problem. When the Royal Navy cannot protect Windows, when the French Military cannot, Nato, Germany, MS Ireland and UK sites, Joe Wilcox gets a virus, who can protect it? Even eWeek, this sites owner, has been serving up windows malware, indirectly, through adservers;
eWEEK and Other Sites Hit By Malware Through Ads
http://www.pcmag.com/article2/0,2817,2341676,00.asp
"Users of eWEEK and several other web sites belonging to Ziff Davis Enterprise on Tuesday were hit by a malicious Acrobat PDF file served through advertisements on the site. The attacks were shut down shortly after being identified.
As eWEEK explains, the abusive PDF did not utilize the new Acrobat vulnerability that has gotten a lot of attention lately, but rather an earlier one patched by Adobe in November. Users with Acrobat 8.1.2 and earlier were affected; just by surfing to the site they may have had the PDF opened by default, causing the download and installation of a rogue anti-virus program called Anti-Virus-1."
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Windows, unsafe on any internet. www.distrowatch.com the solution to avoid windows malware--linux
Posted by chips b malroy | March 3, 2009 11:46 PM
@chips b malroy:
Thanks for the link!
However, Ubuntu running Firefox with the Ad Block Plus plugin along with KPDF for PDF viewing and no Adobe Acrobat installed means this malware is as threatening as a snowball thrown at the Sun.
So I'll continue to let people call me an idiot or freetard or worse for not Getting With the Program, as they commonly call it when one uses and loves Windows.
Posted by Philosopher | March 4, 2009 11:57 AM
@Philosopher :
Of course I am in agreement with you, and I know you would be running a more secure system than the average user. The purpose of the post was to inform others, that still might be surfing with Windose, with an unsafe (administrator account). Some of those users, still think there is "safe surfing" sites. There is no safe surfing anymore for Windows user running a wide open administrator account. Which is 99% and more of home users, and a large percentage of business (mostly small business) users as well.
If the Royal Navy, and Microsoft Ireland, and MS UK, cannot protect Windows, who can? Can we blame Joe Wilcox for getting a virus, when he sets up Vista to run as default to test it? NO, he is only doing his job. Can we blame eWeek for spreading malware thought its ad-servers? NO, as they don't control all the ad-servers, and secondly, they are to be commended if anything, for properly fixing the problem. Of course that does not help those who may have got an infection from this malware, but the idea is to inform them, that there are far far safer ways to use the internet.
@Joe Wilcox:
Joe, I know this is embarrassing for eWeek, and your site MSWatch being a part of eWeek. Still, I think eWeek went above the call of duty and fixed the problem ASAP. But I have to ask, for the viewers out there, was the malware also served here on MSWatch as well? It is an eWeek site.
Mind you, I don't care for myself, as you know, I use Linux, as a limited user, to surf and post here, so no infection on my computers. But I have noticed, that the freelaptops type of windows users have stopped posting lately, maybe they are cleaning out a nasty infection on their computers, and cannot surf of something? LOL
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get away from the ever growing malware problems of windows. Download and try free Linux today
www.distrowatch.com get the monkeyboy off your back and out of your wallet. The windows Seven (Vi$ta7rc2/DRM) upgrade cycle with all its attended costs is soon to begin, don't be a part of it.
Posted by Chips B Malroy | March 4, 2009 1:11 PM
@Chips B Malroy:
Re: "The purpose of the post was to inform others"
Yes, and I was just using your lead-in and rubbing it in! ;-)
Re: "the freelaptops type of windows users have stopped posting lately"
I've noticed that, too. One suddenly-stopped series of attacks ended abruptly with my post at:
www.microsoft-watch.com/content/corporate/microsoft_bangs_the_tomtom_too_hard.html#comment-495897
Viruses? Perhaps. And maybe the FUD bag is empty, the light of truth and reason shines too brightly, and they have all scurried back under the refrigerator (so to speak) to regroup and sneak out when and if it gets darker.
However, I must apologize profusely in advance for that last disparaging remark. Truly I think that cockroaches are wonderfully designed creatures, and regardless of my feelings toward them, they are long-term survivors and are brilliantly equipped for that role.
Posted by Philosopher | March 4, 2009 3:10 PM
Philosopher says:
"@Chips B Malroy:
Re: "The purpose of the post was to inform others"
Yes, and I was just using your lead-in and rubbing it in! ;-)
Re: "the freelaptops type of windows users have stopped posting lately"
I've noticed that, too. Viruses? Perhaps. And maybe the FUD bag is empty, the light of truth and reason shines too brightly, and they have all scurried back under the refrigerator (so to speak) to regroup and sneak out when and if it gets darker."
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Keep up the good work Philosopher. Its people like you and others that have posted here, that has caused the FUD of M$ and its shills, to be revealed for the lies that they are.
For everyone else looking to get the sweaty monkeyboy off their back and out of their wallets, there's this:
The five best desktop Linuxes you haven't tried
http://blogs.computerworld.com/the_five_best_desktop_linuxes_you_havent_tried
and if you want to try them, download them through the links at www.distrowatch.com
Chips recommends "free" versions that run off live cd's, which enable you to test to see if all hardware works before installing. Of course, running off a live cd will be lots slower than running off a hard drive, but very useful to test the hardware, or to repair/clean windows as well.
Posted by Chips B Malroy | March 4, 2009 5:04 PM
Joe says:
"Today, Gartner forecast that year-over-year PC shipment declines would be steeper in 2009 than they were in 2001—11.9 percent compared with 3.2 percent"
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If you think M$ is going be hurting, you are right. But consider the pressure on the manufacturers themselves, the OEM's. Some of these could actually go broke. Best to believe, that some of these OEM's will start to push aggressively for lower cost Windows on OEM's computers, that and/or to start more pre-installs of Linux, as a way to sell more computers. Windows is a huge tax to the consumer to buy a new computer in many of the mature markets. The price of Windows, needs to come down drastically, in this time of Depression.
The battle between M$ and Linux is the race to the bottom of the low end, one that M$ cannot win. On the high end, Mac has already won in mature markets such as the USA. Look for M$ to continue to lose desktop market share, and Windows Seven aka Vi$ta7rc2/DRM, will be little help.
Posted by Chips B Malroy | March 4, 2009 7:00 PM
Well guess what. part of the same problem with vista
is the same problem i am having with 7 all my software will not work with the junk and microshaft
is crazy as H**l if they think i am buying all new
software just to use their new crap. Linux works
just great with anything new i need to do.YES
7 also S**ks better than vista but still S**ks
Posted by hiwaystar | March 4, 2009 7:32 PM