Microsoft just released its earnings report for last quarter, and the numbers sound great: revenue up 8 percent over the same quarter last year; net income up 30 percent; 7 percent increase in Business Division (Office) revenue; Server & Tools up 12 percent; Online Services up 17 percent; Entertainment & Devices up 30 percent.
Only the Windows and Windows Live Division took a hit: revenue down 1 percent from the same quarter last year. "Excluding the impact of the prior year Windows 7 launch and revenue deferral, we estimate full-year revenue growth was in line with PC market growth of 2 percent to 4 percent. Windows 7 has sold over 400 million licenses and business deployments continue to accelerate."
I'm not sure how Microsoft massaged the numbers to say that a decline in revenue is "in line" with a PC sales growth rate of 2 percent to 4 percent, but the fact is that Microsoft is selling fewer and fewer Windows 7 licenses per PC as time goes by.
With the marketing folks' glorious pronouncements about enterprises buying Windows 7 licenses, and its admonitions to upgrade existing XP machines to Win7, you'd think that Microsoft would be selling more Windows 7 licenses than the number of new PCs. Ain't so. Never has been so. And Microsoft's own numbers prove it.
I first talked about the discrepancy in July 2010. (See "Do the math: 175 million copies of Windows 7 isn't that impressive.") I ran the numbers again in April 2011. (See "Microsoft own numbers suggest declining Windows market share.") New numbers are out, and the math paints an even more dismal picture.
Here's how I figure it: Microsoft released Windows 7 on Oct. 22, 2009. On June 30, 2010, Microsoft said it had sold 175 million copies of Windows 7. Three months ago, in Microsoft's last earnings report, the number of licenses sold went up to 350 million. In the latest earnings report, released yesterday, the number increased to 400 million licenses. As far as I know, those are the only official sales figures we've seen for Windows 7.
Of course, Microsoft doesn't report precise sales figures or break the numbers out by retail vs. volume licenses, so it's hard to draw any detailed conclusions. But the one gross calculation that can be made compares the number of Windows 7 licenses sold to the number of (non-Apple) PCs sold. And by that metric, Microsoft's in a world of hurt.
In my April report, I used Gartner's PC sales figures and came to the conclusion that worldwide PC sales ran about 215 million units between Windows 7's launch date and the day of the first official Windows 7 sales figure. Using Gartner's figures again, and a bit of judicious adjustment for Apple sales, I figured that about 260 million PCs were sold between the date of the first sales figure and the date of the second sales figure.
Coming up with PC sales figures for last quarter -- covering the gap between the second and third official Windows 7 sales counts -- is easy. Gartner says 85.2 million PCs were sold worldwide, and 1.9 million Apples were sold in the United States. Sales of Apple computers overseas has skyrocketed -- based on personal observation, anyway -- but I'll give Microsoft the benefit of the doubt and estimate that 85.2 - 1.9 = 83.3 million PCs were sold worldwide in 2Q 2011.
You can see where this is headed, yes?
In the second quarter of this year, Microsoft sold about 50 million Windows 7 licenses -- both retail and volume licenses. But 83.3 million new PCs went out the door. Heaven only knows how many licenses were purchased to upgrade existing PCs. Bottom line is that, this past quarter, Microsoft sold about six Windows 7 licenses for every 10 new PCs.
There's some rumbling about excess Windows 7 licenses being sold at launch, and free automatic upgrades, so the numbers being reported now don't reflect total Windows 7 installations. I don't buy it. As you can see from the graph -- remember, the Win7 license line is based on just four data points (0, 175 million, 350 million, and 400 million units) -- there's been a gap in Windows 7 sales from the earliest days, and it's getting considerably worse.
What's happening? The market's shifting. In the second quarter of 2011, according to Gartner, there were 30.5 million PCs sold in the Asia/Pacific region, compared to just 16.9 million in the U.S. and 23.1 million in EMEA (Europe, Middle East, and Africa). China's demand for PCs grew at 10.9 percent quarter-to-quarter in the past year, while in the United States, it declined 5.6 percent. Anecdotally, sales of PCs in China are just about even with the United States now, and the tide is changing very rapidly.
That doesn't bode well for Windows 7 sales. Chinese consumers -- indeed, many consumers outside of North America, Europe, and Australia/New Zealand -- are loathe to pay for Windows 7. Many enterprises in Asia find ways to deploy Windows 7 without paying American prices. And it's flowing straight into Microsoft's earnings report.
Do the math.
This article, "Microsoft continues to lose ground on new PC sales," was originally published at InfoWorld.com. Get the first word on what the important tech news really means with the InfoWorld Tech Watch blog. For the latest business technology news, follow InfoWorld.com on Twitter.