Microsoft released its quarterly earnings report yesterday, and while the company reported more than $16 billion in revenue and $5 billion in income for a pretty healthy increase over last year, it wasn’t all good news. Basically the company is seeing growth in the business division, but Windows isn’t bringing in as much revenue as expected.
Part of the reason? Microsoft says there’s been an 8% decline in the consumer PC market and a whopping 40% decline in netbooks.
There’s been a lot of talk over the past few years about the rise and fall of netbooks, but most of the figures have been based on educated guesses by industry analysts. Microsoft’s in a much better position to track the netbook market, since the company’s Windows 7 Starter Edition ships on most of the low cost mini-laptops.
There are still a few things to consider. First, it’s not entirely clear from Microsoft Investor Relations manager Bill Koefoed’s comments whether the company is talking about an actual 40% decline in netbook sales, or a 40% decline in sales growth — two figures I often see confused. Some of the language in Koefoed’s comments lead me to believe it’s a decline in growth — which is to say that the netbook market might still be growing, just not as fast as it used to.
The second thing to consider is that nobody ever expected netbooks to replace traditional laptops or other mobile computers. Instead, the introduction of the netbook a few years ago showed that there was demand for low cost portable computers.
In the past, low cost computers were big and clunky, and portable computers were uber-expensive. Now there’s a wide range of devices available for anyone looking for a $500 or less device that weighs less than 4 pounds, including tablets, 10 inch netbooks, and 11 to 12 inch laptop computers with AMD or Intel chips. And I expect netbooks to continue to fill a substantial niche in the mobile computing space. Earlier devices in this space such as UMPCs and Handheld PCs never achieved the same kind of market penetration that netbooks have, and I’d be surprised if they disappear overnight.
What’s interesting to me is that Microsoft is actually pointing to a decline in netbooks (or netbook growth… or something) as a reason for dipping revenue. Microsoft initially offered Windows XP and Windows 7 Starter licenses at very low prices to PC makers hoping to keep the costs of these budget mini-laptops low.
Microsoft was pretty successful at convincing companies to ship netbooks with Windows instead of Linux. In 2008, a number of big name PC makers including Acer, Asus, and HP regularly shipped netbooks with Linux. Today you typically have to go to a Linux specialist or buy a customized business or education model to get a netbook without Windows. But I never got the sense that Microsoft was rolling in dough generated from netbook operating system sales. But declining netbook shipments are part of an overall decline in consumer PC shipments, which could certainly hurt Microsoft in the long run.
Of course, the company is also working hard to make sure that Windows 8 will be able to run on a wide variety of devices including tablet, laptop, and desktop computers with Intel, AMD, or ARM processors. So it’s not like Microsoft is sitting still waiting to see what happens to the netbook space.