Microsoft: ignore PC sales slump 'chatter'
But we're diversified, just in case
Microsoft has downplayed "chatter" about a looming slowdown in PC sales hurting Windows 7 and its business in general.
Executives have separately told Wall St investors that they shouldn't be worried about what they're hearing, and that Microsoft — which gets a third of its annual business from sales of Windows on PCs — is fine.
General manager for investor relations Bill Koefoed is reported to have told the Oppenheimer's Annual Technology, Media and Telecommunications Conference in Boston:
I don't know that I would take two guys that go visit some ODM (original design manufacturer) in Taiwan as a reference on what the market looks like. I would gather a lot of information and then decide what you think that it looks like.
Koefoed was speaking after JP Morgan analyst Christopher Danely said that HP and Acer have cut orders to suppliers of semiconductors. He said that orders are unlikely to pick up, due to the presence of increased numbers of PCs in the supply chain combined with weakening demand in the US, Europe and China.
We expect the weakness to show up in every end market for semiconductors, just as it always has during downturns... We continue to be cautious on the space due to the large amount of capacity coming online combined with softening demand.
The report of slowing demand by the industry's first and third largest PC suppliers comes after iSupply raised its industry guidance for overall semiconductor shipments. After some initial pessimism in March, iSupply said semiconductor sales would rise by 21.5 per cent to $279.7bn - putting them 2.7 per cent higher than the number for 2007, just before the economy tanked.
Microsoft will hope iSupply's numbers hold up, and 2010 and 2011 will see a return to the go-go days of 2007 — its fortunes are anchored to PC sales.
Announcing its recent fourth-quarter financial results, Microsoft claimed that the PC market grew between 22 and 24 per cent — more than double compared to sales when the economy was officially in recession and when Microsoft's revenue fell for successive quarters for the first time.
Revenue for the Windows and Windows Live Division that's home to Windows 7 grew 43 per cent to $4.5bn in the quarter. Microsoft's overall revenue increased 22 per cent to $16bn.
Microsoft now expects that revenue for its Windows Division will grow roughly in line with PC shipments for the current first quarter and full year.
Any slowdown would put a major crimp in that projection and Microsoft's business. The company has been bullishly claiming 175 million licenses of Windows 7 sold since October 2009. It's not clear whether these represent licenses in actual PCs in the hands of end users, or sales to OEMs with PCs still in the channel. Either way, the great majority of sales have been to consumers, with businesses still not refreshing their PCs with Windows 7 en masse.
Microsoft is keenly looking ahead to the rest of 2010 for a revival in business sales combined with the opening of a floodgate of money flowing in from sales of PCs during the usually lucrative summer and fall back-to-school and holiday shopping seasons.
Robert Youngjohns, Microsoft's president of North America sales and marketing, acknowledged his company's dependence on the PC, but claimed Microsoft has enough diversity to weather any slowdown:
Clearly our business is connected to the number of PCs that get sold. But, I think at the same time we have significant ability to sell other stuff related to the PC infrastructure. A substantial part of our business in North America is selling infrastructure software like Windows Server 2008, like SQL Server, like System Center, the stuff that runs the enterprise not just the PC, and that's a business that I think continues to be attractive to us.
There was no mention of money from cloud computing or Windows Azure. ®
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