Microsoft is going through a tough turnaround process in an even tougher market, and despite some encouraging quarterly results today, it’s not all good news.
Windows OEM revenue, or the cash it generates by selling the Windows operating system wholesale to PC manufacturers, was down 5% in constant currency from the previous quarter.
That 5% dip is better than the overall drop in the slowing PC market over the same time period, Microsoft says, but that’s cold comfort — especially since the market is projected to go flat next year.
Microsoft has made it a major goal to get Windows 10 on to 1 billion devices by 2018, and this slowing PC sales growth is also slowing its progress on that front.
On an earnings conference call today, Microsoft CEO Satya Nadella gave some hints on what, exactly, Microsoft is going to do about it.
“We are clear that long-term Windows growth and vibrancy rests on our ability to reinvent personal computers and personal computing,” Nadella said.
He referred to products like the Microsoft Surface, which breathed new life into the laptop/tablet 2-in-1 market. In just the last quarter, the Surface business booked $1.35 billion in sales, mostly thanks to the new Surface Pro 4 tablet and Surface Book laptop.
Beyond just the Surface, companies like Dell, Lenovo, HP, and Samsung are producing their own takes on the Microsoft Surface concept, pushing them to their own customers. Microsoft doesn’t mind, so long as they’re pushing Windows 10 into more hands.
And these devices making a dent in the market. Analyst firm IDC estimates that if you factor in those 2-in-1 devices, PC sales were actually flat, rather than down.
Otherwise, Nadella says he’s focused on offsetting the shrinking market by continuing Windows 10 itself more enterprise friendly with new security and compliance features, which will encourage more of the crucial business market to take the plunge and upgrade.
He also says he wants to help developers make more money with Windows 10, which will attract more apps to the struggling Windows Store.
Finally, Nadella wants to keep working with Microsoft’s PC manufacturer partners to come up with new kinds of computers, using the Surface as kind of a model going foward.
It’s worth noting that the Microsoft HoloLens, the company’s futuristic holographic headset, reportedly has third party ASUS making their own version using the same Microsoft Windows 10 Holographic operating system. It’s an early sign that if the HoloLens takes off, it really could create a whole new market category — which is what Microsoft wants.
Still, the Surface is (mostly) great, but it’s hard to get lightning to strike twice. If Nadella wants to create the next big thing, Microsoft is going to have to hustle hard.
“We accept the challenge,” Nadella says.
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