Microsoft Corporation (MSFT)’s Windows Blue(s)

The reports out of IDC and Gartner on Apr. 10 that worldwide personal computer shipments sharply declined in the first quarter of the year have shocked the markets and produced sell-offs in major PC makers as well as Intel Corporation (NASDAQ:INTC), Microsoft Corporation (NASDAQ:MSFT) and even Apple Inc. (NASDAQ:AAPL). IDC estimates that PC sales fell by about 14% year-over-year to 76 million units, while Gartner estimates the decline to be only 11% with worldwide sales of 79 million.  Most of the blame for the shipment declines has been laid at the feet of Microsoft.

Poking a hole in expectations

The declines poke a hole in the expectation promoted by Microsoft Corporation (NASDAQ:MSFT) and its fans that Windows 8 (along with RT and Phone) would be a “game changer” that would crush Apple Inc. (NASDAQ:AAPL) and restore Microsoft preeminence.  In the IDC press release, IDC VP Bob O’Donnell was particularly harsh in his criticism: “At this point, unfortunately, it seems clear that the Windows 8 launch not only failed to provide a positive boost to the PC market, but appears to have slowed the market.”  And however bad things may be for Windows 8, the reality for Windows/RT can only be worse.  As I pointed out in my satirical piece “Does Apple’s Transparency Breed Contempt,” Bloomberg has estimated that Surface Pro (Windows 8) is outselling Surface RT by 2/1.

The various PC makers will probably see revenue declines in their PC sales about equal to the IDC/Gartner numbers, with the exception of Apple.  IDC indicated that the percent declines won’t be as bad for Apple Inc. (NASDAQ:AAPL), but didn’t give any specific figures.  For Microsoft Corporation (NASDAQ:MSFT), the declines in Windows 8 licensing will probably be much worse.  The suspicion I voiced in “Apple’s Transparency” that Microsoft had front-loaded sales of Windows 8 licenses to OEMs in Q4 2012 in order to report greater than 60 million unit sales will probably turn out to be correct.

However, this really depends on the proportion of Windows 8 sales compared to Windows 7 sales, which is currently unknown.  There’s plenty of anecdotal evidence that non-touch enabled Windows 7 laptops are commanding a higher price than their Win8 counterparts, indicating strong residual demand for Windows 7.  At the end of the year, there were still a lot of non-touch PCs in the manufacturing pipelines that Windows PC makers needed to clear out in Q1.

Adrian Covert’s Apple-beating vision

Simultaneous to the release of the shipment data on April 10, Adrian Covert published an article proclaiming yet another “Apple-beating” Microsoft Windows initiative.  Such articles appear to pander to antipathy for all things Apple Inc. (NASDAQ:AAPL) on the part of many Microsoft Corporation (NASDAQ:MSFT) supporters and investors, as well as their impaired memory.  Wasn’t Windows 8/RT/Phone supposed to crush Apple?  Hasn’t much of the pessimism about Apple since the end of last year been fueled by the expectation that Microsoft was doing precisely that?

Covert’s article was based on a Digitimes report that came out on Monday Apr. 8 that Microsoft Corporation (NASDAQ:MSFT) was working on a version of Windows, codenamed Windows Blue, that would “merge Windows (PC) with Windows Phone.”   The article went on, “The Windows Blue project is being developed by a team separate from the Windows and Windows Phone departments and its purpose is to merge the two operating systems to compete against Google’s Android and Chrome, according to the rumors.”  While acknowledging that the rumors are unconfirmed, Covert trumpeted that “Blue could end being a huge deal. Dissolving the barrier between mobile and desktop would be nothing short of impressive.”