Wounded Giant

The New York Times weighs in on the problems Microsoft is having right now. Layoffs and fallinf revenues are only the tip of the iceberg. It looks like Redmond is looking at a bleak future, at least for several years.

MOUNTAIN VIEW, Calif. — With sales of computers deteriorating by the day, the PC industry’s dominant players — Microsoft and Intel — have arrived at the stark realization that the slump in sales could last a long time, perhaps years.

“We are certainly in the midst of a once-in-a-lifetime set of economic conditions,” Microsoft’s chief executive, Steven A. Ballmer, told investors Thursday in a conference call to discuss the company’s dismal second-quarter financial results. “Our model is not for a quick rebound. Our model is things go down, and then they reset. The economy shrinks.”

To help it cope with that lower base of demand, Microsoft said that it would lay off up to 5,000 employees, or about 5 percent of its work force — the first significant cuts in the company’s 34-year history. The layoffs follow a rare decline in sales of Microsoft’s Windows operating system for personal and business computers in the second fiscal quarter. Net income for the period, which ended Dec. 31, fell 11 percent to $4.17 billion.

Sales of personal computers are dropping with the exception of the new “netbook” category. But those tiny, little machines can’t run the big, powerful operating systems like Windows Vista or Windows 7. Microsoft is having to sell XP to manufacturers of those devices.

Frankly, my own opinion is that Microsoft did severe damage to itself with Vista. People with what had been a powerful PC only a year or two old were shut out of using Vista. That cranked off a large number of folks. People who bought “Vista-Ready” computers only to find out the machines barely ran the system at all were even worse hit. They were livid. That’s two groups of people who could be counted on at one time to upgrade to newer machines. But they were burned by Redmond and they are now very gun shy about buying new PCs.

I suspect, without any proof, that this is why Windows 7 appears to be engineered to run much better on older platforms than Vista was. I also suspect this is why drivers for some older hardware are suddenly available – and are being upgraded regularly. I just got an updated driver for a tablet I have that runs like a top on Windows 7. Seriously, it runs better on Windows 7 than it did on XP.

I suspect that Microsoft is right – it will take a few years to recover from this. People are likely to run their existing computers until they simply won’t work any longer. They won’t replace the PC unless they have to. (And, for now, they are likely to replace them with the tiny netbooks. Heck, my non-geek wife wants a netbook, even though she is currently using my Dell D400, which is pretty much the prototype for the netbook model.)

If Microsoft is smart, they will continue to hone Windows 7 to run even better on older machines for the short term. If not, they will continue to bleed for a longer period of time. If they don’t try to redeem themselves with those burned PC consumers, they stand to lose market share to Linux on the older machines. Ubuntu runs great on the older PCs I have, even the ones that will never be able to run Windows 7.

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6 Responses to Wounded Giant

  1. Thomas Pfau says:

    I read something the other day that said the time it took to develop Vista was so long that several things happened in the computer industry that Microsoft could not adjust for. One of those was netbooks. Vista came in way too large to run on them and now Microsoft has been caught without a player in the game. Linux has a much shorter development cycle and was able to pick up on changes like this much easier. Now Microsoft is forced to play catchup again. Notice they’re predicting a much shorter development cycle for Windows 7. They’ll get skunked like this again if they can’t considerably shorten their development cycle.

  2. Steev says:

    Contrast M$ recent earning with Apple’s. People are still buying computers, they just don’t want crap.
    Apple may still have a small % of the market, but the product is a much better value per $.

  3. tarpon says:

    Meanwhile, Linux gets better and better.

    I agree with the ‘no replace’ arguments. If it works, it’s good enough. What’s not selling is the shiny new with a copy of Windows. Vista was da bomb. We tried it out, uninstalled, and never went back.

    What new we bought were built machines and now run Ubuntu Linux.

  4. Mwalimu Daudi says:

    Competition comes to all companies sooner of later. Microsoft dominated the PC OS market the way IBM used to dominate the PC market.

    It’s hard to believe, but at one point IBM was able to force Intel to sign an agreement with AMD (a company I used to work for) to second-source its microprocessors.

  5. Bleepless says:

    Microsoft is doing a lot of firing, but much of that is being outsourced, not all of it overseas. So they are cutting back on expenses, but not so much on what is being done by and for them.

  6. Sam says:

    Well, these financial difficulties Microsoft is having may have the effect of making them compete for customer loyalty, rather than just assuming that everyone will buy anything they produce. If that is the case, then it will be for the good. As much as I dislike Microsoft, I have used almost every version of Windows (and DOS before that), and will probably continue to use it in the future at least until I retire. So a better Windows will be good for everyone, even making Apple and Linux work harder.

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