Windows 7: Is the PC Recovery A Mirage?

Apps & Software

Published: January 29, 2010 5:54 am

Last Updated: January 29, 2010 6:18 am

Microsoft (MSFT) announced that its revenue rose 14% in the last quarter to $19 billion. EPS rose 57% to $.74. Most of the improvement was due to the sales of Microsoft’s new PC operating system. “Exceptional demand for Windows 7 led to the positive top-line growth for the company,” said Peter Klein, chief financial officer.

The Windows results pushed revenue and operating profits up at an extraordinary rate. The unit that includes results for the new OS increased sales from $4.1 billion a year ago to $6.9 billion in the most recent quarter. Operating profit rose from $2.7 billion to $5.4 billion, evidence of the profitability of Microsoft’s software businesses.

The company said improving PC and server sales accounted for much of the improvement, but that may be unintentionally misleading.

Global PC sales may be up as much because of upgrades to Windows 7 machines as they are because demand is improving as the economy strengthens. Windows 7 adoption rates may be high for several quarters, and that may mask problems in the hardware business.

Microsoft may also be overly wishful about the future prospects of PC sales. If they are being artificially helped by Windows 7 adoption, the hardware growth that Microsoft believes will drive its sales over the next several years may not survive beyond the enthusiasm for Redmond’s latest big product.

Douglas A. McIntyre

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