Microsoft playing the PC market both ways

Friday 19 April 2013 12.45
Microsoft recently launched the Surface tablet
Microsoft recently launched the Surface tablet

It’s results time again and the first quarter of 2013 seems to have continued on largely from where we left things in 2012, writes Niall Kitson.

The short version is software, services and anything with a ‘cloud’ component remains fiercely profitable, while sales of PCs continue to dive (as much as 14% according to some analysts) as tablets become more popular.

You can pick out which companies are going to struggle in this kind of climate. Basically, if you make something tangible you’re in for a tough time. Unless you’re Apple, in which case you can stand on your smartphone business alone (the iPhone sold 38 million units in the last quarter alone) and be the most profitable player in the PC space - accounting for just 5% of unit sales but 45% of the profit.

Intel’s gamble on boutique ultrabooks hasn’t paid off as the first quarter saw a 25% drop in revenue - the only highlight being a bump in its data centre group, up 7.5% to $2.6 billion.

Nokia’s results are slightly more hopeful. Having come back from a $1.3 billion loss on Q1 2012, the Finnish mobile phone giant made ‘only’ a loss of $150 million over the same period this year. Nokia sold 5.6 million Windows Phone-powered Lumia smartphones. This is great news for the Microsoft/Nokia combination that forms the vanguard of the Windows Phone push. No other manufacturer has as much invested in Windows Phone. i.e. there is no plan b.

Progress

Microsoft be happy with Nokia’s progress but its own figures are far from depressing. Despite its failure to save PC sales, every part of Microsoft’s business has performed well in its figures released for the third quarter of 2013. Revenue for the Windows division was flat while entertainment and devices were up 33% - showing there is life in the consumer space yet. What’s more interesting for Redmond is these results mark its breakaway period with its own-brand Surface tablets. Where Nokia is a partner with Windows Phone, now the likes of Dell, Samsung and HP are becoming competitors on most front bar one.

The news that Dell has publicly confirmed its commitment to developing more Windows RT products will come as a fillip to a Microsoft struggling with bad press over tanking PC sales blamed in part on Windows 8. From Redmond's perspective, Dell's statement is a huge vote of confidence, a sign they are working with an OEM that 'gets it' and sees RT as a long-term project. As soon as consumers recognise the difference between RT and 'full fat' Windows 8 in capability, price and range of devices then both operating systems will be able to co-exist as part of a linear ecosystem starting in the handset and ending at the desktop via tablets and low-end PCs - everything in its right place.

Unfortunately things are not going to plan, the market isn't playing ball, consumers are not parting with their cash and OEMs are playing the field in an attempt to circumvent the shrinking PC market.

The sales figures for Microsoft's Surface tablets have been similarly appalling. According to a report on Bloomberg.com, Microsoft has sold just over 1 million units of the Surface RT and only 400,000 of its big brother and pseudo laptop replacement the Surface Pro. In context, that's 1.5 million units versus 22 million iPads over the same period.

It's not fair to compare the biggest player in the space but it does illustrate the scale of Microsoft's challenge. As with the current Windows Phone (itself languishing at around 5% of the smartphone market alongside Blackberry), Win 8’s poor performance has shown that consumers aren’t on the same journey as Microsoft and, given the choice, have far more eclectic tastes than they have the chance to explore.

Choose your battle

That last point on freedom of choice is particularly important given other recent decisions from OEMs on what operating systems to choose for their latest offerings. HP is going with Android in its $169 Slate 7 tablet due for US release this month; Samsung has stopped selling its Ativ Windows RT tablet in Germany and looks like pulling the plug on it entirely; and Lenovo's Ideapad 11 RT hybrid at €819 is priced to fail.

So why would Dell stick with RT? Because it makes for great drama and stokes curiosity. Dell's first crack at the post PC market, the Streak 7, was a failure as has been its little-seen smartphone range. If Dell wants to stay in mobile it needs a differentiator, if that means waiting out the competition as OEMs vacate Windows RT, then so be it. Even better, it might pick up a little cheap heat by becoming the only player of note outside Microsoft - effectively creating the kind of either/or ‘grudge match’ mentality that helped cultivate the Mac fanbase.

HTC has announced it has plans for a 7" RT tablet and this, too, would be good news but for moment it looks like Microsoft and Dell will be left to vie for market share for the RT tablet market - an antagonism borne of a manufactured grudge which the consumer has little interest.

Still, if HTC decides Windows RT isn’t for them you could have two manufacturers slugging it out for market domination of a product developed by one of them. It’s win/win for Microsoft - which sums up their quarterly well.

Niall Kitson is editor of TechCentral.ie