Business = Technology : Cheap PCs Weigh on Microsoft

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< Are=20 Netflix Layoffs Microsoft=92s Fa[...] -- Previous | SEE ALL POSTS FROM THIS=20 BLOG | Next -- Samsung:=20 It=92s Ugly Out There >

December 8, 2008, 3:20 pm

Cheap PCs Weigh on Microsoft

The growing popularity of low-priced, stripped-down computers, = or=20 netbooks, is weighing on Microsoft=92s revenue growth, just as the = software=20 company grapples with weak Vista sales.

Netbook sales have gained traction among budget-conscious = computer=20 buyers. UBS estimates the devices will account for 8% of the = world-wide PC=20 market next year, while research firm iSuppli sees them grabbing = 12% by=20 2012.

But most netbooks have less processing power than their = full-featured=20 cousins and can=92t run high-spec versions of Windows, the = world=92s most=20 widely used operating system. Microsoft is selling netbook makers = cheaper,=20 lighter versions of its operating system, but some manufacturers = cut it=20 out altogether by using Linux, an open-source OS. About 30% of = netbooks,=20 which sell for as little as $300, run a version of Linux.

As netbooks grab market-share from traditional PCs, Microsoft = can=92t=20 sell full-priced copies of its operating system as fast as it = previously=20 had. Last week, Microsoft=92s Windows chief Bill = Veghte=20 said about 70% of netbooks come bundled with a copy of Microsoft = Windows,=20 much lower than the roughly 90% share Microsoft has for the wider = computer=20 market.

=93It=92s pretty clear that netbook sales are cannibalizing = sales of higher=20 priced versions of Windows,=94 said Matt Rosoff, = an analyst=20 at Seattle-based research firm Directions on Microsoft. =93This is = clearly a=20 trend Microsoft is concerned about.=94

Already these challenges have affected revenue growth at = Microsoft=92s=20 Windows business. Revenue growth for that unit fell to 12.7% in = fiscal=20 2008, compared with 13.7% a year earlier.

In November, Microsoft CFO Chris Liddell told=20 investors the lower-than-expected figure was partly caused by the=20 popularity of netbooks. Sales of Windows grew just 2% in the first = quarter=20 of fiscal 2009, which ended Sept. 30, 2008. In most years, Windows = posts=20 double-digit revenue growth, according to company data.

Microsoft may be able to curb the adoption of Linux when it = releases=20 the next version of its operating system. Windows 7, as the new = system is=20 known, is expected to need far less computing power to run, = potentially=20 making it more attractive to computer makers. The new OS, which = was=20 previewed in October, won=92t go on sale until June or July at the = earliest.=20 =93Until Windows 7 comes out, there=92s not much Microsoft can do = about it,=94=20 said Roger Kay, an analyst at Endpoint = Technologies.

- Jessica Hodgson

Image: NCreedplayer via = Flickr

Permalink | Trackback URL:=20 = http://blogs.wsj.com/biztech/2008/12/08/cheap-pcs-weigh-on-microsoft/trac= kback/=20

Save & Share: Share on Facebook | Del.icio.us |=20 The growing popularity of = low-priced, stripped-down computers, or netbooks, is weighing on = Microsoft=92s revenue growth, just as the software company grapples with = weak Vista sales.

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About This Blog

WSJ.com's business-technology blog focuses on the = technology that=20 businesses use -- the hardware, software, services and know-how = that can=20 make or break a business -- and on the people who deploy that = technology.=20 The lead writer is Ben Worthen, who joined The Wall Street Journal = from=20 CIO Magazine. The blog also includes contributions from other = reporters=20 and editors at the Journal, WSJ.com and Dow Jones Newswires. Have = a=20 comment? Write to mailto:biztech@wsj.com =


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