Microsoft CEO Steve Ballmer, in a farewell address to Wall Street, said Microsoft will work hard to ensure the PC remains the computing device of choice, thus ensuring the health of the broader hardware and software ecosystem. But, Microsoft isn’t placing all its bets on PCs.
Smartphone and tablet sales continue to climb and PCs are expected to fall 10 percent this year. Worse, analysts say PC sales will not return to their 2011 peak levels of 315 million units. And that’s the bad news for Microsoft, which relies on PCs to drive sales of its Windows operating system.
Windows was once the dominant product in the Microsoft portfolio. So powerful was Windows that new innovations such as Slate never saw the light of day because they didn’t run Windows. Today, Windows has fallen from Microsoft’s top revenue producer to third. And the pressure on Windows isn’t going away as more consumer and commercial users switch to Windows alternatives.
Outgoing CEO Steve Ballmer doesn’t think the sun is setting on the PC era or the Windows world. During a farewell speech to Wall Street investors, Ballmer says Microsoft must and will work hard to ensure the PC remains the computing device of choice.
“We must do the work to ensure that the PC stays the device of choice when they’re trying to be productive in life,” said Ballmer, who is retiring within the next 12 months.
Relevancy has a number: 300 million units. This year, PC makers will ship more than 315 million laptop and desktop PCs. While a big number, PCs sales will still be off by 9 to 11 percent this year, following a nearly 9 percent decline in 2012. Expectation is PC sales will continue to decline in 2014, but analysts haven’t proffered by how much.
Working in Microsoft’s favor are signs that its missteps and slowly unfolding strategies are beginning to pay dividends. PC sales through distribution are up 14.5 percent in 2013, according to the Global Technology Distribution Council (GTDC), indicating that businesses continue to invest in the form-factor. In October, Microsoft will release Windows 8.1, and updated version of its new operating system that restores features many users want. And in April 2014, Microsoft will discontinue Windows XP, compelling businesses and consumers to upgrade or risk losing support.
Microsoft may want to keep the PC relevant, it’s not placing all its bets in the desktop. At the Wall Street event, Ballmer hinted that Microsoft would soon release versions of its popular Office suite – now the top revenue producer for the company – for Apple’s iPad and Google’s Android platforms.
Microsoft is expected to release the next generation of its Surface tablet in October, including versions of the poor selling RT platform. Just what new features and functions the second generation Surface will have are unknown.
And Microsoft is working to capture a greater share of the smartphone market. It’s acquisition of Nokia signals a strong intent to push through the market barriers and challenge Apple and Google. Today, Microsoft owns about 4 percent of the smartphone market, compared to 35 percent or so for Google and 25 percent for Apple.
Perhaps the secret weapon in the Microsoft arsenal is its cloud computing products. Microsoft services, including Office 365 and Azure, are selling well, particularly through the channel. Cloud services could be the catalyst that adds value to the Microsoft ecosystem and drives adoption of its platforms.
Ballmer admits he and Microsoft made mistakes during his 13-year tenure. But, he’s right when he says Microsoft has the tools and the resources to remain a leader. "We have the tools. There's economic upside here. In the long run, we are almost uniquely poised to seize the opportunity," Ballmer said.