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Microsoft betting on smaller Windows 8 devices and subscriptions

Plans for double-digit decline in traditional PCs

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Microsoft's current financial team has been laying out the company's future strategy, and is hoping that a new rash of smaller Windows 8 PCs and cloud revenues will secure Redmond's future.

During a call with financial analysts after reporting Microsoft's financial results for its third fiscal 2013 quarter on Thursday, departing CFO Peter Klein said that traditional PC shipments continue to decline and forecasts of a double-digit drop in sales next year remains probable. But the forthcoming Haswell and Atom processors from Intel and smaller PCs running Windows 8 cheaply should help Microsoft retain its operating system footprint, he said.

"We build Windows 8 with touch and mobility at the center of the experience, which positions us well in this new era," Klein opined.

"However, the transition is complicated, given the size of our hardware and software ecosystem," he added. "We still have an immense amount of work to do, yet we feel good about the foundation we have laid and are optimistic about the long-term success of Windows."

Microsoft still isn't releasing Windows 8 licensing figures, nor making any comment on the issue. Klein did say that Windows 7 was now running on two-thirds of enterprise desktops, and that the campaign to get people off XP was going well. But Windows 8 can't be selling that well, otherwise Redmond would be trumpeting it from the rooftops.

On the server-and-tools side, Klein said that companies were enthusiastically getting behind the new Server operating system, particularly in light of the cloud capabilities it offers. Double-digit revenue growth is expected next year, and Microsoft is confident it can hold its own against the competition.

The other part of the equation for Microsoft is the shift to cloud services. This would enable the company to book long-term revenue streams, allow it to continually upgrade its code, and make piracy less of an issue – or so Redmond hopes.

Office 365 is set to bring in a billion dollars a year in 2013, Klein said, and a quarter of Microsoft's business customers are now using it, although presumably only partially in most cases. What he didn't explain was how Office 365 revenues will be able to match the cash cow that is installed Office, and this seems highly unlikely. But Klein insisted there are benefits to such an approach.

"Long term it's a great trend because we're building up a banked book of business on the subscriptions side which will become less and less connected to the PC market," he said.

Communications software is also key to Microsoft's ambitions to get its money's worth from the Skype acquisition. Ninety members of the Fortune 100 are now using Lync, Klein said, and the merger of the platform with Skype and Windows Phone 8 will enable "true unified communications everywhere."

But on the more pressing matter of Microsoft's mobile operating system, almost nothing was said. It's been six months since the Windows Phone 8 launch, and so far it's not setting the world alight – although it's big in Russia and Eastern Europe, apparently.

This is Klein's swansong at Microsoft – he explained that he was leaving to spend more time with his family – but he insisted the company had a bright future and a firm bedrock upon which to build. The markets seem less hopeful – Microsoft's shares are down slightly in the day's trading and no one is forecasting a 2012 Apple-like rise anytime soon. ®

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