In New York on Thursday Microsoft will have a marathon launch of their Windows 8 system and it’s on the new product the futures of many of their hardware partners lie.
The figures aren’t good as Microsoft’s 2012 profit and loss shows, here are the figures broken out by operating unit segment from the company’s annual report.
|Year Ended June 30,||2012||2011||2010|
|Revenue||bn $||bn $||bn $|
|Windows & Windows Live Division||18,818||18,787||18,789|
|Operating Income (Loss)|
|Windows & Windows Live Division||11,908||11,971||12,193|
The core Windows & Windows Live Division has stagnant revenues and a slowly declining profit margin. We’ll leave the huge losses in the online division for a future post.
Since the days of the first MS-DOS deal with IBM, Microsoft’s core business has been the licensing of operating systems to PC manufacturers and now that model is in trouble.
For instance Dell had an 8% drop in revenue resulting in a worrying 22% drop in operating profit, their PC dominated consumer division suffered a fat 22% drop in sales and recorded a miniscule .5% profit margin. Similarly Asus had 25% drop in sales to record a 2011 loss.
The pain being suffered by PC manufacturers’ sales and margins will almost certainly be shared by Microsoft as companies like Dell, HP and Asus simply can’t afford to pay the licensing fees which have sustained the Redmond business model for so long.
Microsoft and their partners hope – or pray – that the PC decline is a temporary hiccup in computer sales similar to the traditional lull seen before the release of a new system.
History’s not on their side with research company Asymco expecting sales of tablet computers to overtake PCs sometime in late 2013.
Moving onto tablets and smartphones in this light makes sense for Microsoft and given the PC manufacturers have failed dismally to deliver decent tablet computers or phones over the last 15 years so it’s understandable the software giant wanted to develop their own hardware or team up with a struggling company like Nokia.
The declining margins in personal computers means we’re seeing the end of the Windows desktop ecosystem. With the rise of the web and cloud computing the type of operating system we use is like arguing between Toyota and BMW drivers; one might be more prestigious but both will get you where you want to go.
For Microsoft the challenge is to replace those Windows licensing rivers of gold with similar revenue streams through their phone and tablet products but with Apple and Google already dominating those fields, is it too late for the company that dominated personal computing? The next six months will tell us.